Question

During the audit of Moon Co, the auditor disagrees with management's estimation of collectible accounts receivable. The possible misstatements amounts is material. Which of the statements below should weigh more heavily for the auditor in this instance?

1) The auditor's professional judgment
2) The management's estimation
3) The materiality of the misstatements
4) The collectible accounts receivable

Answer 1

The auditor's professional judgment and the materiality of misstatements weigh more heavily when there is a disagreement with management's estimation of collectible accounts receivable during an audit.

Step-by-step explanation:

When an auditor disagrees with management's estimation of collectible accounts receivable, and the possible misstatements are material, the auditor's professional judgment weighs more heavily. The auditor must consider the materiality of the misstatements in assessing the overall impact on the financial statements. While management provides an estimation, the auditor's role is to verify the reasonableness of such estimates against objective evidence. If a material misstatement is likely, the auditor must address this finding in their audit report, potentially leading to a qualified or an adverse opinion if the issue is not resolved. Management's estimations are integral to the process, but they must be grounded in reasonable assumptions and evidence which the auditor evaluates and tests independently.