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

If you were to perform the following audit procedure-review accounts receivable trial balance for large and unusual receivables-what balance- related audit objective would this relate to?

Assuming the client's internal controls are adequate, describe how the auditor can verify proper cutoff of sales transactions.

Confirmations of accounts receivable are useful for evaluating several accounts receivable balance- related audit objectives, including existence, rights and realisable value.

After items to be confirmed have been selected, the auditor must maintain control of the confirmations until:

Each auditee misstatement of accounts receivable must be analysed to determine whether it:

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: trace accounts from the accounts receivable master file to the aged trial balance.

Analytical procedures are substantive tests and, if the results of the analytical procedures are favourable, they will:

to positive confirmations do NOT provide audit evidence.

Which one of the following would NOT be a part of the approach used in determining the reasonableness of cutoff?

In the audit of accounts receivable, list the factors that affect the planned detection risk for tests of details of balances.

Cutoff misstatements occur when:

Planned detection risk and planned evidence are directly related; that is, as planned detection risk increases, planned audit evidence for tests of details of balances also increases.

When a customer disagrees with the amount shown on an accounts receivable confirmation, the auditor should not ask the client to reconcile the difference.

When sending confirmations during most audits of accounts receivable, the emphasis should be on confirming larger and older accounts.

If customers use voucher systems, they can confirm balance information but not individual invoices.

The understatement of sales and accounts receivable is BEST uncovered by:

The auditor learns that collections of accounts receivable during the first ten days of January were entered as debits to cash and credits to accounts receivable as of December 31. The effect generally will be to:

The accounts receivable balance- related audit objective net realisable value is not affected by assessed control risk for sales or cash receipts.

It is easy to test for a cash receipts cutoff misstatement by tracing recorded cash receipts to subsequent- period bank deposits on the bank statement.

The client's estimate of the total amount of uncollectible receivables is represented by: