CAF-8 · Chapter 7 · Question 6 of 10
A client's trade payable days have drastically decreased from 55 days in the prior year to 25 days in the current year, despite no changes in supplier payment terms. What is the most likely risk indicated by this ratio?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Understatement of trade payables.
Explanation
A sudden, unexplained drop in payable days indicates that the liability might not be fully recorded at year-end. If purchases are occurring but the corresponding payables aren't booked, the payable days ratio drops artificially.
More Introduction to Substantive Procedures MCQs
- Q8Which of the following best describes the concept of 'Directional Testing' in auditing?
- Q9If an auditor has assessed control risk in the payroll system as extremely low and tests of controls confirm they operate effectively, how…
- Q10To perform a substantive analytical procedure on interest expense, an auditor multiplies the average outstanding bank loan balance by the…
- Q1Under ISA 520, which of the following is an essential feature of applying substantive analytical procedures?
- Q2During the final review stage of an audit, the engagement partner performs analytical procedures. What is the primary objective of these…