Question

An auditor has determined a materiality threshold of $100,000 for a client. The auditor has accumulated audit evidence that supports an allowance for credit losses in the range of $1.5 million to $1.8 million. The client recorded $800,000 as the allowance for credit losses and declines to record any additional allowance. What proposed adjustment will the auditor include in the summary of unadjusted differences?

Debit credit loss expense $700,000; credit allowance for credit losses $700,000.

Debit credit loss expense $1,100,000; credit allowance for credit losses $1,100,000.

Debit credit loss expense $750,000; credit allowance for credit losses $750,000.

Debit credit loss expense $850,000; credit allowance for credit losses $850,000.

Answer 1

Amount of adjustment required equals the difference between recorded allowance and low range of the auditor's estimate.

Amount of adjustment required = 1500000-800000 = $700000

Debit credit loss expense $700,000; credit allowance for credit losses $700,000.

Option A is correct