Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

In confirming accounts receivable balances, the auditor finds overstatements caused by mistakes in billing customers which will then overstate both accounts receivable and sales.

Accepted Answer

A) True 
 B)False

Question 4

A customer mails and records a cheque to a client for payment of an unpaid account on December 30.The client receives and records the amount on January 2.The records of the two organisations will be different on December 31.

Accepted Answer

A)  This is a timing difference. 
B)  This is a cutoff misstatement. 
C)  both A and B 
D)  none of the above 
A)  This is a timing difference. 
B)  This is a cutoff misstatement. 
C)  both A and B 
D)  none of the above

Question 5

A high acceptable audit risk will permit a higher planned detection risk than if acceptable audit risk were low.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

For most audits, inherent risk for accounts receivable is usually moderate or low except for the realisable value objective and the cutoff objective.

Accepted Answer

A) True 
 B)False

Question 9

Match five of the 11 terms (a-k)with the five descriptions provided below (1-5):
a. accounts receivable
b. balance-related audit objectives
c. alternative procedures
d. blank confirmation form
e. cutoff misstatements
f. evidence planning worksheet
g. negative confirmation
h. positive confirmation
i. realisable value of accounts receivable
j. timing difference in an accounts receivable confirmation
k. invoice confirmation.
1 the follow-up of a positive confirmation not returned by the debtor with the use of documentation evidence to determine whether the recorded receivable exists and is collectible
2 a letter, addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct or incorrect, and, if incorrect, by what amount
3 misstatements that take place as a result of current period transactions being recorded in a subsequent period, or subsequent period transactions being recorded in the current period
4 a form used to help the auditor decide whether planned detection risk for tests of details of balances should be low, medium, or high for each balance-related audit objective
5 a letter, addressed to the debtor, requesting a response only if the recipient disagrees with the amount of the stated account balance

Accepted Answer

The answer of Match five of the 11 terms (a-k)with...

Question 10

Setting tolerable error for accounts receivable is part of which phase of the audit?

Accepted Answer

A)  Phase I 
B)  Phase II 
C)  Phase III 
D)  Phase IV 
A)  Phase I 
B)  Phase II 
C)  Phase III 
D)  Phase IV

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is NOT a factor affecting sample size for confirming accounts receivable?

Accepted Answer

A)  type of confirmation 
B)  tolerable misstatement 
C)  control risk 
D)  assessed detection risk 
A)  type of confirmation 
B)  tolerable misstatement 
C)  control risk 
D)  assessed detection risk

Question 13

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

Accepted Answer

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

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

The bad debt expense is a residual balance that can be verified by a reperformance test.

Accepted Answer

A) True 
 B)False

Question 17

An auditor is concerned that accounts receivable may be understated due to sales to customers that have been omitted from both the sales journal and the accounts receivable master file.Describe the procedure(s)the auditor should perform in these circumstances.

Accepted Answer

The understatement of sales and accounts

Question 18

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

Accepted Answer

A)  reviewing the aged trial balance. 
B)  reconciling the accounts receivable general ledger account with the schedule of accounts receivable. 
C)  test of transactions for shipments made but not recorded. 
D)  confirming receivables. 
A)  reviewing the aged trial balance. 
B)  reconciling the accounts receivable general ledger account with the schedule of accounts receivable. 
C)  test of transactions for shipments made but not recorded. 
D)  confirming receivables.

Question 19

Favourable results from analytical procedures reduce the extent to which the auditor needs to test details of balances.

Accepted Answer

A) True 
 B)False

Question 20

When the client's rights to accounts receivable are limited, detection can be accomplished by:

Accepted Answer

A)  reviewing minutes of directors meetings. 
B)  inquiries of the financial controller. 
C)  confirmation with banks. 
D)  all of the above 
A)  reviewing minutes of directors meetings. 
B)  inquiries of the financial controller. 
C)  confirmation with banks. 
D)  all of the above

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

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

In confirming accounts receivable balances, the auditor finds overstatements caused by mistakes in billing customers which will then overstate both accounts receivable and sales.

A customer mails and records a cheque to a client for payment of an unpaid account on December 30.The client receives and records the amount on January 2.The records of the two organisations will be different on December 31.

A high acceptable audit risk will permit a higher planned detection risk than if acceptable audit risk were low.

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.

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.

For most audits, inherent risk for accounts receivable is usually moderate or low except for the realisable value objective and the cutoff objective.

Setting tolerable error for accounts receivable is part of which phase of the audit?

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

Which of the following is NOT a factor affecting sample size for confirming accounts receivable?

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

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

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

The bad debt expense is a residual balance that can be verified by a reperformance test.

An auditor is concerned that accounts receivable may be understated due to sales to customers that have been omitted from both the sales journal and the accounts receivable master file.Describe the procedure(s)the auditor should perform in these circumstances.

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

Favourable results from analytical procedures reduce the extent to which the auditor needs to test details of balances.

When the client's rights to accounts receivable are limited, detection can be accomplished 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

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

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

In confirming accounts receivable balances, the auditor finds overstatements caused by mistakes in billing customers which will then overstate both accounts receivable and sales.

A customer mails and records a cheque to a client for payment of an unpaid account on December 30.The client receives and records the amount on January 2.The records of the two organisations will be different on December 31.

A high acceptable audit risk will permit a higher planned detection risk than if acceptable audit risk were low.

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.

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.

For most audits, inherent risk for accounts receivable is usually moderate or low except for the realisable value objective and the cutoff objective.

Setting tolerable error for accounts receivable is part of which phase of the audit?

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

Which of the following is NOT a factor affecting sample size for confirming accounts receivable?

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

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

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

The bad debt expense is a residual balance that can be verified by a reperformance test.

An auditor is concerned that accounts receivable may be understated due to sales to customers that have been omitted from both the sales journal and the accounts receivable master file.Describe the procedure(s)the auditor should perform in these circumstances.

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

Favourable results from analytical procedures reduce the extent to which the auditor needs to test details of balances.

When the client's rights to accounts receivable are limited, detection can be accomplished 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