Which audit procedure helps ensure that prepayments are accurately accounted for?

Which audit procedure helps ensure that prepayments are accurately accounted for?

• A. Reconcile customer balances
• B. Obtain a confirmation from customers
• C. Recalculate amounts prepaid from listings
• D. Review credit notes issued

Answer: (C)

Recalculating amounts prepaid from listings is an essential audit procedure for ensuring the accurate accounting of prepayments. This procedure involves verifying the amounts recorded as prepayments by comparing them against supporting documentation, such as invoices or contracts, and recalculating the total based on the terms of payment. This helps to ensure that prepayments are reflected accurately in the financial statements, matching the amounts that are expected to benefit the entity in future periods. Additionally, recalculation serves to identify any discrepancies that might arise from misclassification or incorrect data entry. By checking the arithmetic and ensuring that the totals align with the records and agreements, auditors can gain assurance that prepayments are correctly recorded as assets, which is crucial for accurate financial reporting. This procedure thus supports the integrity of the financial statements by confirming that prepayments are not overstated or understated.

Recalculating amounts prepaid from listings is an essential audit procedure for ensuring the accurate accounting of prepayments. This procedure involves verifying the amounts recorded as prepayments by comparing them against supporting documentation, such as invoices or contracts, and recalculating the total based on the terms of payment. This helps to ensure that prepayments are reflected accurately in the financial statements, matching the amounts that are expected to benefit the entity in future periods.

Additionally, recalculation serves to identify any discrepancies that might arise from misclassification or incorrect data entry. By checking the arithmetic and ensuring that the totals align with the records and agreements, auditors can gain assurance that prepayments are correctly recorded as assets, which is crucial for accurate financial reporting. This procedure thus supports the integrity of the financial statements by confirming that prepayments are not overstated or understated.