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

Auditors would least likely consider the conditions of the sale allowing for a right of return or the right to modify the purchase agreement when assessing inherent risk associated with sales transactions.

Step-by-step explanation:

When assessing the inherent risk associated with sales transactions, auditors would least likely consider the conditions of the sale allowing for a right of return or the right to modify the purchase agreement. This factor is more related to the audit of accounting estimates and provisions rather than inherent risk. Inherent risk refers to the risk of material misstatement in the financial statements before considering the effectiveness of internal controls. Factors such as revenue recognition methods, credit authorization process, and timing of billing are more directly associated with inherent risk in sales transactions.