Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 224

During an assurance engagement, an internal auditor must select a basis for estimating the amount of expected uncollectable accounts receivable in order to test the reported net accounts receivable figure in the financial statements for reasonableness. Which of the following methods would be the most appropriate for this assessment?

Answer options

Correct answer: D

Explanation

The correct answer is D, Percentage of receivables, as it provides a reliable basis by assessing the collectability of outstanding accounts based on historical data. The other methods, such as Direct write-off and Percentage of sales, lack the accuracy needed for estimating uncollectable accounts in a balance sheet context, while Historical estimate may not reflect current conditions effectively.