Question

Smith Corp. has numerous customers. A customer file is maintained and includes a customer record with a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded.

The best procedure for the auditor to follow would be to:
A. Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations
B. Develop a program the compares credit limits with account balances and print out the details of any account with a balance exceeding its credit limit
C. Request a printout of all account balances so that they can be manually checked against the credit limits
D. Request a printout of a sample of account balances so that they can be individually checked against the respective credit limits

Answer 1

The best audit procedure is to develop a program to compare account balances with credit limits and identify accounts exceeding these limits for efficient and systematic review.

Step-by-step explanation:

To determine whether credit limits are being exceeded in Smith Corp.'s customer file, the best procedure for an auditor to follow would be to develop a program that compares credit limits with account balances and print out the details of any account with a balance exceeding its credit limit. This technique allows the auditor to efficiently review all the data, rather than a sample, and immediately identifies any discrepancies. It is a more sophisticated method compared to manually checking account balances and provides a systematic approach to error detection.