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57 A technology company has a large accounts receivable balance. During the prior year, the company's allowance for doubtful accounts balance was sufficient to

 

57 A technology company has a large accounts receivable balance. During the prior year, the company's allowance for doubtful accounts balance was sufficient to cover all receivables that were outstanding for more than 120 days, plus an additional 1% of the total accounts receivable balance. During the current year audit, auditors noted that the company had a client go bankrupt, so they had to write off a large receivable The amount written off was not a part of the amount which was outstanding for more than 120 days Which assessment should these auditors make about the balance in the allowance for doubtful accounts? It was too low in the prior year, so they should issue a restatement. Since the prior year's estimate was too low, the estimate should be significantly increased the next year. When the estimate is too low, the auditors should expect to find evidence of fraud. Though the estimate was low, it is expected that outcomes will be different than the estimates.

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