Question 1

The pending sales orders can be reviewed for evidence of the _______ of recorded _______ and _______.

Accepted Answer

[completeness, sales, accounts receivable]

Question 2

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

Accepted Answer

A) Shipments lacking sales invoices and shipping documents. 
B) Excessive write-offs of accounts receivable. 
C) Unrecorded sales at year-end. 
D) Lapping of year-end accounts receivable. 
A) Shipments lacking sales invoices and shipping documents. 
B) Excessive write-offs of accounts receivable. 
C) Unrecorded sales at year-end. 
D) Lapping of year-end accounts receivable. C

Question 3

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Accepted Answer

A) Unrecorded purchases. 
B) Unrecorded sales. 
C) Merchandise purchases being charged to selling and general expense. 
D) Fictitious sales. 
A) Unrecorded purchases. 
B) Unrecorded sales. 
C) Merchandise purchases being charged to selling and general expense. 
D) Fictitious sales. B

Question 4

Internal control assessment is important because it governs the _______, _______ and _______ of substantive procedures.

Accepted Answer

[nature, t

Question 5

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:

Accepted Answer

A) a majority of recipients usually lacks the willingness to respond objectively. 
B) some recipients may report incorrect balances that require extensive follow up. 
C) the auditor cannot infer that all nonrespondents have verified their account information. 
D) negative confirmations do not produce evidential matter that is statistically quantifiable. 
A) a majority of recipients usually lacks the willingness to respond objectively. 
B) some recipients may report incorrect balances that require extensive follow up. 
C) the auditor cannot infer that all nonrespondents have verified their account information. 
D) negative confirmations do not produce evidential matter that is statistically quantifiable.

Question 6

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because:

Accepted Answer

A) many customers merely sign and return the confirmation without verifying its details. 
B) recipients usually respond only if they disagree with the information on the request. 
C) customers may not be inclined to report understatement errors in their accounts. 
D) auditors typically select many accounts with low recorded balances to be confirmed. 
A) many customers merely sign and return the confirmation without verifying its details. 
B) recipients usually respond only if they disagree with the information on the request. 
C) customers may not be inclined to report understatement errors in their accounts. 
D) auditors typically select many accounts with low recorded balances to be confirmed.

Question 7

An auditor noted that client sales had increased 10 percent for the year. At the same time, cost of goods sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. The auditor interviewed the sales manager who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor best test the sales manager's representation?

Accepted Answer

A) Perform additional inquiries with sales personnel. 
B) Obtain copies of all price lists in use during the year and vouch the prices to sales invoices. 
C) Send confirmations asking customers about unit prices paid for product. 
D) Vouch vender invoices to payments made after year-end. 
A) Perform additional inquiries with sales personnel. 
B) Obtain copies of all price lists in use during the year and vouch the prices to sales invoices. 
C) Send confirmations asking customers about unit prices paid for product. 
D) Vouch vender invoices to payments made after year-end.

Question 8

When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations:

Accepted Answer

A) copies of the client's shipping documents that support the account balances. 
B) lists of the customers' recent payments that the client has already recorded. 
C) client-prepared statements of account that show the details of the account balances. 
D) copies of the customers' purchase orders that support the account balances. 
A) copies of the client's shipping documents that support the account balances. 
B) lists of the customers' recent payments that the client has already recorded. 
C) client-prepared statements of account that show the details of the account balances. 
D) copies of the customers' purchase orders that support the account balances.

Question 9

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

Accepted Answer

A) Understating the sales journal. 
B) Overstating the accounts receivable control account. 
C) Overstating the accounts receivable subsidiary ledger. 
D) Understating the cash receipts journal. 
A) Understating the sales journal. 
B) Overstating the accounts receivable control account. 
C) Overstating the accounts receivable subsidiary ledger. 
D) Understating the cash receipts journal.

Question 10

To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?

Accepted Answer

A) Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period. 
B) Analyze transactions occurring within a few days before and after year-end. 
C) Confirm year-end transactions with regular customers. 
D) Examine cash receipts in the subsequent period. 
A) Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period. 
B) Analyze transactions occurring within a few days before and after year-end. 
C) Confirm year-end transactions with regular customers. 
D) Examine cash receipts in the subsequent period.

Question 11

The control activity "credit sales approved by credit department" is directed toward which transaction assertion?

Accepted Answer

A) Occurrence. 
B) Completeness. 
C) Accuracy. 
D) Cutoff. 
A) Occurrence. 
B) Completeness. 
C) Accuracy. 
D) Cutoff.

Question 12

In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from:

Accepted Answer

A) an aging schedule of past due accounts that the auditor has tested. 
B) correspondence with the client's collection agency. 
C) financial statements of individual customers. 
D) no reply to negative confirmations. 
A) an aging schedule of past due accounts that the auditor has tested. 
B) correspondence with the client's collection agency. 
C) financial statements of individual customers. 
D) no reply to negative confirmations.

Question 13

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Accepted Answer

A) no duplicate shipments or billings occurred. 
B) shipments to customers were properly invoiced. 
C) all goods ordered by customers were accounted for. 
D) all prenumbered sales invoices were accounted for. 
A) no duplicate shipments or billings occurred. 
B) shipments to customers were properly invoiced. 
C) all goods ordered by customers were accounted for. 
D) all prenumbered sales invoices were accounted for.

Question 14

Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations?

Accepted Answer

A) The balance is immaterial. 
B) Confirmations would be ineffective. 
C) The client requests alternative procedures be performed instead. 
D) Other procedures provide sufficient competent evidence. 
A) The balance is immaterial. 
B) Confirmations would be ineffective. 
C) The client requests alternative procedures be performed instead. 
D) Other procedures provide sufficient competent evidence.

Question 15

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

Accepted Answer

A) A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
B) A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
C) A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
D) A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
A) A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
B) A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
C) A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
D) A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

Question 16

Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to:

Accepted Answer

A) evaluate internal control over credit sales. 
B) test the accuracy of recorded charge sales. 
C) estimate credit losses. 
D) verify the existence of the recorded receivables. 
A) evaluate internal control over credit sales. 
B) test the accuracy of recorded charge sales. 
C) estimate credit losses. 
D) verify the existence of the recorded receivables.

Question 17

Dual direction testing involves samples of transactions selected to obtain evidence about control over _______ in one direction and control over _______ in the other direction.

Accepted Answer

[completen

Question 18

Two widely used confirmation forms to test accounts receivable are _______ and _______ confirmations.

Accepted Answer

[positive,

Question 19

Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date?

Accepted Answer

A) Lapping year-end accounts receivable. 
B) Inflating sales for the year. 
C) Kiting bank balances. 
D) Misappropriating merchandise. 
A) Lapping year-end accounts receivable. 
B) Inflating sales for the year. 
C) Kiting bank balances. 
D) Misappropriating merchandise.

Question 20

To be recognized, revenues must also be realized or realizable and:

Accepted Answer

A) foreseeable. 
B) collected. 
C) earned. 
D) shipped. 
A) foreseeable. 
B) collected. 
C) earned. 
D) shipped.

The pending sales orders can be reviewed for evidence of the ___ of recorded _ and _____.

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

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Internal control assessment is important because it governs the ___, _ and _____ of substantive procedures.

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because:

When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations:

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?

The control activity "credit sales approved by credit department" is directed toward which transaction assertion?

In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from:

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations?

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to:

Dual direction testing involves samples of transactions selected to obtain evidence about control over _ in one direction and control over _ in the other direction.

Two widely used confirmation forms to test accounts receivable are _ and _ confirmations.

Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date?

To be recognized, revenues must also be realized or realizable and:

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash 227

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Reports on Audited Financial Statements

Filters

Exam 7: Revenue and Collection Cycle 279

The pending sales orders can be reviewed for evidence of the _______ of recorded _______ and _______.

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

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Internal control assessment is important because it governs the _______, _______ and _______ of substantive procedures.

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because:

When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations:

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?

The control activity "credit sales approved by credit department" is directed toward which transaction assertion?

In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from:

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations?

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to:

Dual direction testing involves samples of transactions selected to obtain evidence about control over _______ in one direction and control over _______ in the other direction.

Two widely used confirmation forms to test accounts receivable are _______ and _______ confirmations.

Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date?

To be recognized, revenues must also be realized or realizable and:

Auditing and Assurance Services

Professional Standards

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash 227

Acquisition and Expenditure Cycle 336

Production Cycle 394

Finance and Investment Cycle 443

Completing the Audit 500

Reports on Audited Financial Statements

Filters

The pending sales orders can be reviewed for evidence of the ___ of recorded _ and _____.

Internal control assessment is important because it governs the ___, _ and _____ of substantive procedures.

Dual direction testing involves samples of transactions selected to obtain evidence about control over _ in one direction and control over _ in the other direction.

Two widely used confirmation forms to test accounts receivable are _ and _ confirmations.