Audit and Assurance Practice Exam

Which assertions are usually most relevant for accounts receivable?

1. Existence and valuation

2. Completeness and accuracy

3. Cut-off and rights

4. Presentation and disclosure

The correct answer is: Existence and valuation

The assertions that are usually most relevant for accounts receivable include existence and valuation. Existence is critical because the auditor needs to confirm that the accounts receivable recorded in the financial statements represent actual amounts owed by customers. This involves verifying that these balances are not inflated through fictitious entries and ensuring that the amounts recorded actually exist at the reporting date. Valuation is also significant as it entails assessing whether the accounts receivable are recorded at their net realizable value. This means evaluating whether the amounts are collectible and determining if any allowance for doubtful accounts should be established to reflect the estimated losses from uncollectible receivables. Proper valuation ensures that financial statements provide a true and fair view of the assets. While completeness, accuracy, cut-off, rights, and presentation and disclosure are also important, they tend to have less direct relevance compared to existence and valuation when considering the nature and typical risks associated with accounts receivable.