Accounts receivable risks In the financial statements, there are many risks associated with an audit that must be considered. Identify and discuss five separate risks that may exist related to accounts receivable
Potential risks associated with accounts receivable include:
? Sales of receivables made with recourse and recorded as sales transactions rather than financing transactions.
? Receivables pledged as collateral against specific loans with restricted use. Disclosures of such restrictions are required.
? Receivables incorrectly classified as current when the likelihood of collection during the next year is low.
? Collection of a receivable contingent on specific events that cannot currently be estimated.
? Payment is not required until the purchaser sells the product to its end customers.
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When an auditor lacks independence with respect to a client, which of the following should the auditor issue?
a. A disclaimer of opinion. b. An adverse opinion. c. A qualified opinion with explanatory paragraph. d. An unqualified opinion.
The most useful information derived from a cost-volume-profit chart is the
a. amount of sales revenue needed to cover enterprise variable costs. b. amount of sales revenue needed to cover enterprise fixed costs. c. relationship among revenues, variable costs, and fixed costs at various levels of activity. d. volume or output level at which the enterprise breaks even.
The preferred stock of a firm sometimes includes a cumulative feature. This means that:
A. holders of preferred stock have a claim on assets that comes before common stockholders if the firm goes out of business. B. if the firm skips a preferred dividend in one period, the amount it must pay the next period is equal to the dividend for that periodplusthe amount of the dividend it skipped in the previous period. C. the firm must pay any back taxes, legal expenses, wages owed to workers, and debts owed to creditors before the owners of the firm get anything. D. if the firm issues new stock, existing stockholders can purchase new shares in proportion to their existing holdings before the stock is offered to the other investors.
A company is planning to build a new facility in a foreign country, and the success or failure of this venture depends on the demand for the products produced at the facility. It estimates that there is a 70% probability of high demand for the products and a 30% probability of low demand. This is an example of ______.
A. decision under certainty B. decision under uncertainty C. decision under state of nature D. decision under risk