Question

Which of the following factors would an auditor least likely consider when assessing the inherent risk associated with sales transactions?

A) Billings are made using the percentage-of-completion method of revenue recognition.
B) The nature of the credit authorization process.
C) Some invoices are normally billed prior to shipments [which occur at a later date].
D) The conditions of the sale allow for a right of return or the right to modify the purchase agreement.

Answer 1

An auditor would least likely consider the billing method while assessing inherent risk in sales transactions.

Step-by-step explanation:

The factor that an auditor would least likely consider when assessing the inherent risk associated with sales transactions is Option A) Billings are made using the percentage-of-completion method of revenue recognition.

The percentage-of-completion method of revenue recognition is a commonly accepted accounting practice that recognizes revenue based on the progress of a project. This method is typically used for long-term construction contracts or other contracts that involve multiple performance obligations over a period of time.

However, when assessing inherent risk, auditors are more likely to focus on factors such as the credit authorization process, timing of invoicing and shipments, and the conditions of the sale regarding returns or modifications. These factors have a direct impact on the likelihood of misstatement or fraud in sales transactions.