Final answer:
The auditor can determine whether a client has limited rights to accounts receivable by examining the terms and conditions of contracts or agreements with customers, looking for evidence of transactions in the financial statements, and requesting confirmation letters from customers.
Step-by-step explanation:
The auditor can determine whether a client has limited rights to accounts receivable by examining the terms and conditions of the contracts or agreements with the client's customers.
If the client has limited rights to accounts receivable, it means that they have assigned or pledged their receivables as collateral for a loan or sold them to another party. The auditor can look for evidence of these transactions in the client's financial statements, such as disclosures in the notes to the financial statements or in the footnotes.
In addition, the auditor can request confirmation letters from the client's customers to verify the terms and conditions of the contracts and whether the client has limited rights to accounts receivable.