Question 1

Discuss the circumstances in which it is acceptable to use negative confirmation requests.

Accepted Answer

It is acceptable to use negative confirmation requests only when all of the following circumstances are present:
· accounts receivable is made up of a large number of small accounts
· combined assessed control risk and inherent risk is low
· there is no reason to believe that the recipients of the confirmations are unlikely to give them consideration.

Question 2

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

Accepted Answer

A) True 
 B)False  False

Question 3

A client's failure to record a credit note could result from:

Accepted Answer

A)  improper recording of sales returns. 
B)  improper recording of sales allowances. 
C)  timing differences. 
D)  all of the above 
A)  improper recording of sales returns. 
B)  improper recording of sales allowances. 
C)  timing differences. 
D)  all of the above D

Question 4

For maximum reliability, accounts receivable confirmations should be sent as close to balance date as possible.

Accepted Answer

A) True 
 B)False

Question 5

The type of confirmation is a major factor affecting sample size when confirming accounts receivable, with negative confirmations normally requiring a larger sample than positive confirmations.

Accepted Answer

A) True 
 B)False

Question 6

Recording a cash receipt that did not occur violates the existence transaction- related audit objective for the sales and collections cycle. Which balance- related audit objective for accounts receivable does it violate?

Accepted Answer

A)  Existence 
B)  Realisable value 
C)  Completeness 
D)  Accuracy 
A)  Existence 
B)  Realisable value 
C)  Completeness 
D)  Accuracy

Question 7

When customers do NOT respond to positive confirmation requests, auditors:

Accepted Answer

A)  must examine supporting documents. 
B)  must rely on inquiry of client. 
C)  cannot express an unqualified opinion. 
D)  cannot complete the engagement and must issue a disclaimer. 
A)  must examine supporting documents. 
B)  must rely on inquiry of client. 
C)  cannot express an unqualified opinion. 
D)  cannot complete the engagement and must issue a disclaimer.

Question 8

Cutoff misstatements exist when subsequent period transactions are recorded in the current period.

Accepted Answer

A) True 
 B)False

Question 9

Explain whether it is equally as important to test the cutoff for sales and cash receipts.

Accepted Answer

For most audits, a proper cash receipts

Question 10

The primary purpose of accounts receivable confirmation is to satisfy the:

Accepted Answer

A)  existence objective. 
B)  accuracy and cutoff objectives. 
C)  existence and cutoff objectives. 
D)  existence, accuracy and cutoff objectives. 
A)  existence objective. 
B)  accuracy and cutoff objectives. 
C)  existence and cutoff objectives. 
D)  existence, accuracy and cutoff objectives.

Question 11

It is appropriate to regard confirmations mailed but not returned by customers as significant audit evidence.

Accepted Answer

A) True 
 B)False

Question 12

When positive confirmations have been used, it is normally desirable to account for unconfirmed balances with alternative procedures:

Accepted Answer

A)  even if the amounts are small. 
B)  if it does not increase the audit firm's costs. 
C)  only if the amounts are large. 
D)  only if the amounts are material. 
A)  even if the amounts are small. 
B)  if it does not increase the audit firm's costs. 
C)  only if the amounts are large. 
D)  only if the amounts are material.

Question 13

The results of analytical procedures performed while auditing the sales and collection cycle are used to determine the level of planned tolerable misstatement for accounts receivable
balance- related audit objectives.

Accepted Answer

A) True 
 B)False

Question 14

This year is the first time that, as a normal practice in a client's business, accounts receivable may be pledged, assigned, factored or sold at discount. The audit procedure which would disclose these practices would be:

Accepted Answer

A)  a review of the minutes of the board of directors' meetings. 
B)  discussions with the client. 
C)  examination of correspondence files. 
D)  all of the above 
A)  a review of the minutes of the board of directors' meetings. 
B)  discussions with the client. 
C)  examination of correspondence files. 
D)  all of the above

Question 15

Which one of the following types of receivables would NOT deserve the special attention of the auditor?

Accepted Answer

A)  Accounts where no reply was received to a negative confirmation request 
B)  Accounts with credit balances 
C)  Accounts that have been outstanding for a long time 
D)  Receivables from affiliated companies 
A)  Accounts where no reply was received to a negative confirmation request 
B)  Accounts with credit balances 
C)  Accounts that have been outstanding for a long time 
D)  Receivables from affiliated companies

Question 16

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Confirm accounts receivable, using positive confirmations.

Accepted Answer

A)  Existence 
B)  Completeness 
C)  Classification 
D)  All of the above 
A)  Existence 
B)  Completeness 
C)  Classification 
D)  All of the above

Question 17

The criterion used by most clients for determining when a sale takes place is when:

Accepted Answer

A)  the goods are shipped. 
B)  cash is exchanged. 
C)  the order is received. 
D)  the costs are incurred. 
A)  the goods are shipped. 
B)  cash is exchanged. 
C)  the order is received. 
D)  the costs are incurred.

Question 18

The auditor may consider it unnecessary to confirm accounts receivable response rates from the confirmations that are likely to be unreliable.

Accepted Answer

A) True 
 B)False

Question 19

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.

Accepted Answer

The primary advantage of negative confir

Question 20

It is easy to test for a cash receipts cutoff error by:

Accepted Answer

A)  observing the counting of cash at the balance sheet date. 
B)  performing a four- column proof- of- cash. 
C)  reconciling the bank statement. 
D)  tracing recorded cash receipts to bank deposits on the bank statement of a subsequent period. 
A)  observing the counting of cash at the balance sheet date. 
B)  performing a four- column proof- of- cash. 
C)  reconciling the bank statement. 
D)  tracing recorded cash receipts to bank deposits on the bank statement of a subsequent period.

Discuss the circumstances in which it is acceptable to use negative confirmation requests.

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

A client's failure to record a credit note could result from:

For maximum reliability, accounts receivable confirmations should be sent as close to balance date as possible.

The type of confirmation is a major factor affecting sample size when confirming accounts receivable, with negative confirmations normally requiring a larger sample than positive confirmations.

Recording a cash receipt that did not occur violates the existence transaction- related audit objective for the sales and collections cycle. Which balance- related audit objective for accounts receivable does it violate?

When customers do NOT respond to positive confirmation requests, auditors:

Cutoff misstatements exist when subsequent period transactions are recorded in the current period.

Explain whether it is equally as important to test the cutoff for sales and cash receipts.

The primary purpose of accounts receivable confirmation is to satisfy the:

It is appropriate to regard confirmations mailed but not returned by customers as significant audit evidence.

When positive confirmations have been used, it is normally desirable to account for unconfirmed balances with alternative procedures:

The results of analytical procedures performed while auditing the sales and collection cycle are used to determine the level of planned tolerable misstatement for accounts receivable balance- related audit objectives.

This year is the first time that, as a normal practice in a client's business, accounts receivable may be pledged, assigned, factored or sold at discount. The audit procedure which would disclose these practices would be:

Which one of the following types of receivables would NOT deserve the special attention of the auditor?

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Confirm accounts receivable, using positive confirmations.

The criterion used by most clients for determining when a sale takes place is when:

The auditor may consider it unnecessary to confirm accounts receivable response rates from the confirmations that are likely to be unreliable.

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.

It is easy to test for a cash receipts cutoff error by:

Demand for Audit and Assurance Services

Auditors Legal Environment

Audit Quality and Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Documentation

Materiality and Risk

Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling

Audit of Transaction Cycles and Financial Statement Balances I

Audit of Transaction Cycles and Financial Statement Balances II

Completing the Audit

Audit Reporting

Other Auditing and Assurance Engagements

Filters

Exam 13: Completing Tests in the Sales and Collection Cycle: Accounts Receivable

Discuss the circumstances in which it is acceptable to use negative confirmation requests.

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

A client's failure to record a credit note could result from:

For maximum reliability, accounts receivable confirmations should be sent as close to balance date as possible.

The type of confirmation is a major factor affecting sample size when confirming accounts receivable, with negative confirmations normally requiring a larger sample than positive confirmations.

Recording a cash receipt that did not occur violates the existence transaction- related audit objective for the sales and collections cycle. Which balance- related audit objective for accounts receivable does it violate?

When customers do NOT respond to positive confirmation requests, auditors:

Cutoff misstatements exist when subsequent period transactions are recorded in the current period.

Explain whether it is equally as important to test the cutoff for sales and cash receipts.

The primary purpose of accounts receivable confirmation is to satisfy the:

It is appropriate to regard confirmations mailed but not returned by customers as significant audit evidence.

When positive confirmations have been used, it is normally desirable to account for unconfirmed balances with alternative procedures:

The results of analytical procedures performed while auditing the sales and collection cycle are used to determine the level of planned tolerable misstatement for accounts receivable balance- related audit objectives.

This year is the first time that, as a normal practice in a client's business, accounts receivable may be pledged, assigned, factored or sold at discount. The audit procedure which would disclose these practices would be:

Which one of the following types of receivables would NOT deserve the special attention of the auditor?

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Confirm accounts receivable, using positive confirmations.

The criterion used by most clients for determining when a sale takes place is when:

The auditor may consider it unnecessary to confirm accounts receivable response rates from the confirmations that are likely to be unreliable.

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.

It is easy to test for a cash receipts cutoff error by:

Demand for Audit and Assurance Services

Auditors Legal Environment

Audit Quality and Ethics

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Documentation

Materiality and Risk

Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling

Audit of Transaction Cycles and Financial Statement Balances I

Audit of Transaction Cycles and Financial Statement Balances II

Completing the Audit

Audit Reporting

Other Auditing and Assurance Engagements

Filters