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Hi, I came across this question and couldn’t understand the reason behind the answer given.
1. A review of pre year end correspondence with customers to identify any disputed balances.
A. Overstatement of allowances
B. Understatement of allowancesAnswer given is B. Why is this so?
If you can post what is question that’ll make it faster perhaps for you to get the answer here.
When checking the reasonableness of specific allowances for receivables, an assurance provider may test for both understatement and overstatement. For each of the following procedures, select whether they will provide evidence for understatement or overstatement in respect of specific allowances for receivables.
1. A review of pre year end correspondence with customers to identify any disputed balances.
A. Overstatement of allowances
B. Understatement of allowancesHi Yiing,
An assurance provider will review pre year end correspondence with customers to identify balances usually to find out if allowances for bad debts are understated or not in other words to identify if there are any disputes with customers over supply or quality of goods/services and whether a reasonable provision has been provided in FS or not?
So as per my understanding, answer to this question should be B) Understatement of allowances
Thanks for answering Muhammad.
Meaning if it is post year end correspondence, assurance provider would check whether payment has been made or not?
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