Question

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the:

A) meter department records to the billing (sales) register.
B) billing (sales) register to the meter department records.
C) accounts receivable ledger to the billing (sales) register.
D) billing (sales) register to the accounts receivable ledger.

Answer 1

The CPA should test from the meter department records to the billing (sales) register to determine if all customers are being billed.

Step-by-step explanation:

The CPA should conduct a test from the meter department records to the billing (sales) register to determine whether all customers are being billed. This test will help ensure that the information recorded in the meter department records accurately flows into the billing register. By comparing these two records, the CPA can identify any discrepancies or missing billing information. The question pertains to the proper direction of testing to ensure that all customers of an electric utility are being billed.

The direction of testing that would be most effective for a CPA (Certified Public Accountant) auditing this matter is from the meter department records to the billing (sales) register. This testing approach is called completeness testing, where the auditor takes a sample of the meter records (which show electricity usage and would signify that there is a customer to be billed) and ensures that each of these records can be matched to a corresponding entry in the billing register. By doing so, the CPA can establish whether every customer who should be billed has indeed been billed.

Answer 2

The CPA can trace transactions from the billing register to the accounts receivable ledger to determine if all customers are being billed accurately.

Step-by-step explanation:

The CPA auditing an electric utility can determine whether all customers are being billed by tracing the transactions from the billing (sales) register to the accounts receivable ledger. This direction of test helps ensure that all sales transactions are accurately recorded in the accounts receivable ledger, which represents the amount owed by customers.

By comparing the entries in the billing register to the corresponding entries in the accounts receivable ledger, the CPA can verify if all customer bills have been properly recorded. If any discrepancies or missing entries are found, further investigation can be done to identify the cause and rectify any errors or omissions.

For example, if the billing register shows that a customer was billed for a certain amount but that entry is not found in the accounts receivable ledger, it may indicate a failure to properly record the transaction and bill the customer. This could result in lost revenue or inaccurate financial statements.