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Hi
which one come first in ranking the appropriate test for valuation assertion relating to doubtful account:
1) Ask the credit controller what debt are considered to be doubtful.
2) Review sales invoices relating to overdue accounts.
the examiner placed 1 before 2 but I feel the second is auditor-generated and should be ranked before 1 which is weak( as it is verbal and is management evidence- could be the inside plan not to disclose the actual figure to the auditor so there is a risk of not obtaining correct value of the receivables).
not yet convinced why 1 come before 2.
thanks, kim.It’s not a past exam question (nor an adaption of one) – so you can ignore it entirely. It is too subjective to ask for a ranking of “appropriateness” because that is a function relevance, reliability (for which there are criteria) and sufficiency (which depends also on reliability).
I will comment, however, that you are overly sceptical – professional scepticism does not mean that you assume the worst of management. The credit controller should have the best knowledge of the customers and has no reason to lie because the auditor is never going to rely on their word alone.
Kim. I didn’t meant to assume worst of management but i was trying to show the potential risk that comes with this audit evidence and the need of subjecting it to further evidence rather than taking it at face value(scepticism)- especially in profit related performance measurement there is incentive to do this. so it was just an attitude of having questioning mind,not a conclusion. Additionally, with respect to the option of evidence in the question, i thought reviewing the sales invoice relating to overdue account is more befitting on determining the VALUATION of the account receivables.
Also, In the ranking of evidence from the syllabus, it is the auditor generated that comes before management evidence.
thanks,sir.And I didn’t mean to sound critical (!) – I concur with you that as verbal evidence, 1 alone would be insufficient as although relevant to the valuation assertion, it is the least reliable.
But, in reading your original post again (sorry – I must have still been in holiday mode this morning!), reviewing the make-up of a receivable balance is only evidence that the transaction occurred and therefore that the balance exists – it actually provides no evidence regarding the recoverability of the debt which is the issue when talking about “valuation” in the SoFP. So 2 is not better than 1 because although more reliable, it isn’t directly relevant to the stated assertion.
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