Describe how the auditor tests the classification objective for accounts receivable.

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Describe how the auditor tests the classification objective for accounts receivable.


Answer:

Normally, auditors can evaluate the classification of accounts receivable relatively easily, by reviewing the aged trial balance for material receivables from affiliates, officers, directors, or other related parties. Auditors should verify that notes receivable or accounts that should be classified as noncurrent assets are separated from regular accounts, and significant credit balances in accounts receivable are reclassified as accounts payable.

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