Question

Which of the following accounts is the practice of "channel stuffing" for sales most likely to most directly affect, and thereby result in additional audit procedures?

a.Accrued liabilities.
b.Allowance for sales returns.
c.Cash.
d.Marketable investments.

Answer 1

Channel stuffing likely affects the allowance for sales returns account, leading auditors to perform additional procedures to ensure the account covers potential returns.

Step-by-step explanation:

The practice of channel stuffing is most likely to directly affect the allowance for sales returns account. Channel stuffing refers to the deliberate attempt by a company to inflate its sales figures by shipping more products to its distributors and retailers than they can realistically sell. As a consequence, distributors and retailers may return unsold goods, resulting in a higher than normal sales returns. Hence, auditors may need to perform additional procedures on the allowance for sales returns account to ensure it is adequate to cover potential returns stemming from this practice.