Question

As part of his controls testing over DULL's revenue process, Shawn Hiwa noted that the controls over credit approval for customers are extremely lax. As a result, sales are frequently made to customers who are bad credit risks. In the above example, which managerial assertion is being violated?

a. authorization
b. completeness
c. cutoff
d. rights and obligation

Answer 1

The managerial assertion being violated in the scenario with lax credit approval is 'authorization,' which refers to the properly authorized approval of transactions.

Step-by-step explanation:

In the scenario where controls over credit approval for customers at DULL are described as extremely lax and sales are made to customers who are bad credit risks, the managerial assertion being violated is authorization. This assertion refers to the process where all transactions should be approved by an appropriate and authorized individual within the company conforming to its policies and risk management procedures. When sales are made to customers without proper credit checks, this implies that there is an inadequate control over the authorization process to ensure that only customers with acceptable credit risk are granted sales on credit.