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Your evaluation of a statistical sample indicates that there

Your evaluation of a statistical sample indicates that there may be a material misstatement in the population. Upon analyzing the detected misstatements, a common cause was discovered: Most of the misstatements were caused by the failure to record sales returns on a timely basis. That is, sales were returned prior to December 31 but were recorded as January returns because the person who normally records sales returns was on vacation at year end.

How should the auditor proceed to determine whether accounts receivable and sales returns and allowances contain a material misstatement?

Solution Preview

Most of the misstatements were caused by the failure to record sales returns on a timely basis. We've basically got a situation where returns are being made, and the cash is being given out for the return (or a credit is issued), but it's not recorded in the proper period due ...

Solution Summary

Your evaluation of a statistical sample indicates that there may be a material misstatement in the population. Upon analyzing the detected misstatements, a common cause was discovered: Most of the misstatements were caused by the failure to record sales returns on a timely basis. That is, sales were returned prior to December 31 but were recorded as January returns because the person who normally records sales returns was on vacation at year end.

How should the auditor proceed to determine whether accounts receivable and sales returns and allowances contain a material misstatement?

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