Question 1

A positive confirmation is more reliable evidence than a negative confirmation because:

Accepted Answer

A)  the auditor has a document which can be used in court. 
B)  follow- up procedures can be performed if a response is not received from the debtor. 
C)  the debtor's lack of response indicates agreement with the stated balance. 
D)  fewer confirmations can be sent out. 
A)  the auditor has a document which can be used in court. 
B)  follow- up procedures can be performed if a response is not received from the debtor. 
C)  the debtor's lack of response indicates agreement with the stated balance. 
D)  fewer confirmations can be sent out.

Question 2

Inherent risk for accounts receivable is normally assessed at the objective level, rather than at the account level.

Accepted Answer

A) True 
 B)False

Question 3

Discuss three examples of analytical procedures an auditor might perform while auditing the sales and collection cycle. Also discuss the potential misstatement(s) that may be revealed by each analytical procedure.

Accepted Answer

Analytical procedures applicab

Question 4

If the client's internal control for recording sales returns and allowances is evaluated as effective:

Accepted Answer

A)  all sales returns must be confirmed with the customer. 
B)  a sample of sales returns and allowances subsequent to closing date are examined 
C)  all sales returns must be traced to supporting documentation. 
D)  a larger sample is needed to verify cutoff. 
A)  all sales returns must be confirmed with the customer. 
B)  a sample of sales returns and allowances subsequent to closing date are examined 
C)  all sales returns must be traced to supporting documentation. 
D)  a larger sample is needed to verify cutoff.

Question 5

Describe the types of 'unusual balances' auditors are looking for when they review the accounts receivable master file.

Accepted Answer

Auditors are obviously concerned with la

Question 6

Which of the audit objectives is performed first when doing the tests of details of balances for accounts receivable?

Accepted Answer

A)  Recorded accounts receivable exist. 
B)  Accounts receivable in the aged trial balance agree with related master file amounts and the total is correctly added and agrees with the general ledger. 
C)  Accounts receivable are owned. 
D)  Existing accounts receivable are included. 
A)  Recorded accounts receivable exist. 
B)  Accounts receivable in the aged trial balance agree with related master file amounts and the total is correctly added and agrees with the general ledger. 
C)  Accounts receivable are owned. 
D)  Existing accounts receivable are included.

Question 7

You are reviewing sales to discover cutoff problems. If the client's policy is to record sales when title to the merchandise passes to the buyer, then the books and records would contain errors if the December 31 entries were for sales recorded:

Accepted Answer

A)  before the merchandise was shipped. 
B)  several days subsequent to shipments. 
C)  at the time the merchandise was shipped. 
D)  at a time other than the point at which title passed. 
A)  before the merchandise was shipped. 
B)  several days subsequent to shipments. 
C)  at the time the merchandise was shipped. 
D)  at a time other than the point at which title passed.

Question 8

Describe how the auditor tests the rights objective for accounts receivable.

Accepted Answer

The auditor can test the rights objectiv

Question 9

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Review accounts receivable trial balance for large and unusual receivables.

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 10

Describe the differences between positive and negative confirmation. Which type is more reliable?

Accepted Answer

A positive confirmation requests the rec

Question 11

The most reliable evidence from confirmations is obtained when they are sent:

Accepted Answer

A)  at various times throughout the year to different sections of the samples, so that the entire sample is representative of account balances scattered throughout the year. 
B)  several months before the year- end, so the auditor will have adequate time to perform alternate procedures if they are required. 
C)  as close to the balance sheet date as possible. 
D)  at various times throughout the year to the same group in the sample, so that the sample will not have a time bias. 
A)  at various times throughout the year to different sections of the samples, so that the entire sample is representative of account balances scattered throughout the year. 
B)  several months before the year- end, so the auditor will have adequate time to perform alternate procedures if they are required. 
C)  as close to the balance sheet date as possible. 
D)  at various times throughout the year to the same group in the sample, so that the sample will not have a time bias.

Question 12

Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a:

Accepted Answer

A)  bank confirmation. 
B)  positive confirmation. 
C)  negative confirmation. 
D)  management letter. 
A)  bank confirmation. 
B)  positive confirmation. 
C)  negative confirmation. 
D)  management letter.

Question 13

The allowance for doubtful debts account is capable of precise calculation.

Accepted Answer

A) True 
 B)False

Question 14

The results of substantive tests of sales and cash receipts transactions are used to determine the level of planned detection risk for each accounts receivable balance- related audit objective.

Accepted Answer

A) True 
 B)False

Question 15

When positive confirmations are used, ASA 505 requires follow- up procedures for confirmations not returned by the customer. In such a situation, which of the following would NOT be classified as an alternative procedure?

Accepted Answer

A)  Examine subsequent cash receipts to determine if the receivable has been paid. 
B)  Send a second confirmation request. 
C)  Examine shipping documents to verify that the merchandise was shipped. 
D)  Examine customer's purchase order and the duplicate sales invoice to determine that the merchandise was ordered. 
A)  Examine subsequent cash receipts to determine if the receivable has been paid. 
B)  Send a second confirmation request. 
C)  Examine shipping documents to verify that the merchandise was shipped. 
D)  Examine customer's purchase order and the duplicate sales invoice to determine that the merchandise was ordered.

Question 16

The advantage of using the negative form of confirmations is that:

Accepted Answer

A)  follow- up procedures are scheduled automatically. 
B)  it is appropriate in all circumstances. 
C)  larger sample sizes can be used without increasing the costs above what would have been required for positive confirmations. 
D)  customer's silence proves that the balance is correct. 
A)  follow- up procedures are scheduled automatically. 
B)  it is appropriate in all circumstances. 
C)  larger sample sizes can be used without increasing the costs above what would have been required for positive confirmations. 
D)  customer's silence proves that the balance is correct.

Question 17

The realisable value of accounts receivable equals gross accounts receivable less the allowance for doubtful debts account.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following would most likely be detected by an auditor's review of a client's sales cutoff?

Accepted Answer

A)  Excessive sales discounts 
B)  Unrecorded sales for the year 
C)  Unauthorised goods returned for credit 
D)  Lapping of year- end accounts receivable 
A)  Excessive sales discounts 
B)  Unrecorded sales for the year 
C)  Unauthorised goods returned for credit 
D)  Lapping of year- end accounts receivable

Question 19

Which one of the following is NOT an accounts receivable balance- related audit objective?

Accepted Answer

A)  Recorded accounts receivable exist. 
B)  The client has rights to accounts receivable. 
C)  Internal controls for accounts receivable are adequate. 
D)  Accounts receivable is stated at realisable value. 
A)  Recorded accounts receivable exist. 
B)  The client has rights to accounts receivable. 
C)  Internal controls for accounts receivable are adequate. 
D)  Accounts receivable is stated at realisable value.

Question 20

It may NOT necessary for an auditor to confirm accounts receivable when:

Accepted Answer

A)  the auditor considers confirmations ineffective evidence because response rates will likely be inadequate or unreliable. 
B)  the combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence. 
C)  accounts receivable are immaterial. 
D)  any one of the above three is present. 
A)  the auditor considers confirmations ineffective evidence because response rates will likely be inadequate or unreliable. 
B)  the combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence. 
C)  accounts receivable are immaterial. 
D)  any one of the above three is present.

A positive confirmation is more reliable evidence than a negative confirmation because:

Inherent risk for accounts receivable is normally assessed at the objective level, rather than at the account level.

Discuss three examples of analytical procedures an auditor might perform while auditing the sales and collection cycle. Also discuss the potential misstatement(s) that may be revealed by each analytical procedure.

If the client's internal control for recording sales returns and allowances is evaluated as effective:

Describe the types of 'unusual balances' auditors are looking for when they review the accounts receivable master file.

Which of the audit objectives is performed first when doing the tests of details of balances for accounts receivable?

You are reviewing sales to discover cutoff problems. If the client's policy is to record sales when title to the merchandise passes to the buyer, then the books and records would contain errors if the December 31 entries were for sales recorded:

Describe how the auditor tests the rights objective for accounts receivable.

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Review accounts receivable trial balance for large and unusual receivables.

Describe the differences between positive and negative confirmation. Which type is more reliable?

The most reliable evidence from confirmations is obtained when they are sent:

Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a:

The allowance for doubtful debts account is capable of precise calculation.

The results of substantive tests of sales and cash receipts transactions are used to determine the level of planned detection risk for each accounts receivable balance- related audit objective.

When positive confirmations are used, ASA 505 requires follow- up procedures for confirmations not returned by the customer. In such a situation, which of the following would NOT be classified as an alternative procedure?

The advantage of using the negative form of confirmations is that:

The realisable value of accounts receivable equals gross accounts receivable less the allowance for doubtful debts account.

Which of the following would most likely be detected by an auditor's review of a client's sales cutoff?

Which one of the following is NOT an accounts receivable balance- related audit objective?

It may NOT necessary for an auditor to confirm accounts receivable when:

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

A positive confirmation is more reliable evidence than a negative confirmation because:

Inherent risk for accounts receivable is normally assessed at the objective level, rather than at the account level.

Discuss three examples of analytical procedures an auditor might perform while auditing the sales and collection cycle. Also discuss the potential misstatement(s) that may be revealed by each analytical procedure.

If the client's internal control for recording sales returns and allowances is evaluated as effective:

Describe the types of 'unusual balances' auditors are looking for when they review the accounts receivable master file.

Which of the audit objectives is performed first when doing the tests of details of balances for accounts receivable?

You are reviewing sales to discover cutoff problems. If the client's policy is to record sales when title to the merchandise passes to the buyer, then the books and records would contain errors if the December 31 entries were for sales recorded:

Describe how the auditor tests the rights objective for accounts receivable.

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Review accounts receivable trial balance for large and unusual receivables.

Describe the differences between positive and negative confirmation. Which type is more reliable?

The most reliable evidence from confirmations is obtained when they are sent:

Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a:

The allowance for doubtful debts account is capable of precise calculation.

The results of substantive tests of sales and cash receipts transactions are used to determine the level of planned detection risk for each accounts receivable balance- related audit objective.

When positive confirmations are used, ASA 505 requires follow- up procedures for confirmations not returned by the customer. In such a situation, which of the following would NOT be classified as an alternative procedure?

The advantage of using the negative form of confirmations is that:

The realisable value of accounts receivable equals gross accounts receivable less the allowance for doubtful debts account.

Which of the following would most likely be detected by an auditor's review of a client's sales cutoff?

Which one of the following is NOT an accounts receivable balance- related audit objective?

It may NOT necessary for an auditor to confirm accounts receivable when:

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