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Finance & Accounting
Pages 4 (1004 words)
Name Instructor Course 1 October 2012 Explanations to support Work Paper 3-8 ACCOUNT NAME TOLERABLE MISSTATEMENT EXPLANATION Cash and cash equivalents $100 Because of the cash is easy to verify and exist. Furthermore, the auditor will not challenge difficulty to audit it.
There is normally a high risk of misstatement for accounts receivable as there is a possibility that debts may not be collectible due to the inability of customers (debtors) to pay. It is important to ensure that the amounts are collectible so that adequate provisions can be made. Tests should be done to determine the age of the debts in comparison to the terms given to debtors’ confirmations should also be sent on the bass of materiality. Additionally, the auditor should ensure that amounts stated as receivables are not disputed due to poor record keeping or inadequate controls over cash receipts. The amount represented by 2% is $172. Therefore, if the amounts are misstated by that amount it is not a major problem. However, if the amount by which the figure is misstated is greater than $172 then there is a cause for concern. The receivables figure has declined by over 30% while revenues have increased. It is important to determine the reason for this. Receivables are susceptible to both intentional and unintentional misstatements and a lot of work will be required to verify such balances. Prepaid advertising $200 The tolerable misstatement of 2% is within the limits recommended (Willis & Adams 3-2). ...
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