Question 1

Stratification of accounts receivable is desirable when using confirmations.

Accepted Answer

A) True 
 B)False  True

Question 2

Cutoff misstatements occur when

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)    C

Question 3

If the auditor decides not to confirm accounts receivable that are material,the auditor should

Accepted Answer

A) always use alternative procedures to audit the accounts receivable. 
B) include copies of customer statements in the audit files. 
C) document the reasons for such a decision in the audit files. 
D) include copies of customer sales invoices in the audit files. 
A) always use alternative procedures to audit the accounts receivable. 
B) include copies of customer statements in the audit files. 
C) document the reasons for such a decision in the audit files. 
D) include copies of customer sales invoices in the audit files. C

Question 4

If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be inadequate or unreliable,they need not confirm accounts receivable.

Accepted Answer

A) True 
 B)False

Question 5

Describe three audit procedures an auditor would use to test for the realizable value balance-related audit objective

Accepted Answer

Audit procedures would include:
•Trace a

Question 6

When positive confirmations are used,auditing standards require alternative procedures for confirmations not returned by the customer.Which of the following would not be considered an alternative procedure?

Accepted Answer

A) Send a second confirmation request. 
B) Examine subsequent cash receipts to determine if the receivable has been paid. 
C) Examine shipping documents to verify that the merchandise was shipped. 
D) Examine sales invoice to verify the actual issuance of a sales invoice and the actual date of the billing. 
A) Send a second confirmation request. 
B) Examine subsequent cash receipts to determine if the receivable has been paid. 
C) Examine shipping documents to verify that the merchandise was shipped. 
D) Examine sales invoice to verify the actual issuance of a sales invoice and the actual date of the billing.

Question 7

Cutoff misstatements can occur for sales,sales returns,and cash receipts.List below the threefold approach an auditor performs for each account above to determine the reasonableness of the cutoff.

Accepted Answer

1.Decide on the appropriate cr

Question 8

When do most companies record sales returns and allowances?

Accepted Answer

A) during the month in which the sale occurs 
B) during the accounting period in which the return occurs 
C) whenever the customer contacts the company regarding the credit 
D) during the month after the sale occurs 
A) during the month in which the sale occurs 
B) during the accounting period in which the return occurs 
C) whenever the customer contacts the company regarding the credit 
D) during the month after the sale occurs

Question 9

Below are listed possible misstatements that could occur in the sales and collections cycle.Provide the analytical procedure that would be most useful in detecting the possible misstatement.
a. overstatement of sales and accounts receivable
b. uncollectible accounts receivable that have not been provided for
c. overstatement of sales returns and allowances

Accepted Answer

a. compare gross margin percentage with

Question 10

Blank confirmations are considered less reliable than standard positive confirmations.

Accepted Answer

A) True 
 B)False

Question 11

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

Accepted Answer

A) no reply to a positive confirmation request is received. 
B) no reply to a negative confirmation request is received. 
C) collectibility of the receivables is in doubt. 
D) pledging of the receivables is probable. 
A) no reply to a positive confirmation request is received. 
B) no reply to a negative confirmation request is received. 
C) collectibility of the receivables is in doubt. 
D) pledging of the receivables is probable.

Question 12

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

Accepted Answer

It is acceptable to use negative confirm

Question 13

A confirmation is a type of audit evidence.

Accepted Answer

A) True 
 B)False

Question 14

When an auditor uses negative confirmations,several factors must be considered.What are those factors?

Accepted Answer

When negative confirmations are used,the

Question 15

The results of the tests of controls determine whether assessed control risk for sales and cash receipts needs to be revised.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

Confirmation of accounts selected from t

Question 17

When an auditor tests to determine if all existing accounts receivable are included in the aged trial balance,

Accepted Answer

A) they cannot rely on the self-balancing nature of the accounts receivable master file. 
B) if all sales to a customer are omitted from the sales journal,it is easy to uncover the understatement of accounts receivable by tests of details of balances. 
C) auditors rarely send accounts receivable confirmations to customers with zero balances. 
D) unrecorded sales to a new customer are easy to identify for confirmation because that customer is included in the accounts receivable master file. 
A) they cannot rely on the self-balancing nature of the accounts receivable master file. 
B) if all sales to a customer are omitted from the sales journal,it is easy to uncover the understatement of accounts receivable by tests of details of balances. 
C) auditors rarely send accounts receivable confirmations to customers with zero balances. 
D) unrecorded sales to a new customer are easy to identify for confirmation because that customer is included in the accounts receivable master file.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The most important aspect of evaluating the client's method of obtaining a reliable cutoff is to

Accepted Answer

A) perform extensive detailed testing of cutoff. 
B) evaluate the client's control procedures around cutoff. 
C) confirm a sample of transactions near period end with customers. 
D) confirm transaction with customers. 
A) perform extensive detailed testing of cutoff. 
B) evaluate the client's control procedures around cutoff. 
C) confirm a sample of transactions near period end with customers. 
D) confirm transaction with customers.

Question 20

Which of the following is an accurate statement regarding the risk assessment process of phase I of the audit process for the sales and collection cycle?

Accepted Answer

A) Auditors must perform substantive tests related to assertions deemed to have significant risks. 
B) The auditor must relate control risk for transaction-related audit objectives to balance-related audit objectives in deciding planned inherent risk. 
C) The realizable value balance-related audit objectives are affected by assessed control risk for classes of transactions. 
D) All of the above are accurate statements. 
A) Auditors must perform substantive tests related to assertions deemed to have significant risks. 
B) The auditor must relate control risk for transaction-related audit objectives to balance-related audit objectives in deciding planned inherent risk. 
C) The realizable value balance-related audit objectives are affected by assessed control risk for classes of transactions. 
D) All of the above are accurate statements.

Exam 16: Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Stratification of accounts receivable is desirable when using confirmations.

Cutoff misstatements occur when

If the auditor decides not to confirm accounts receivable that are material,the auditor should

If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be inadequate or unreliable,they need not confirm accounts receivable.

Describe three audit procedures an auditor would use to test for the realizable value balance-related audit objective

When positive confirmations are used,auditing standards require alternative procedures for confirmations not returned by the customer.Which of the following would not be considered an alternative procedure?

Cutoff misstatements can occur for sales,sales returns,and cash receipts.List below the threefold approach an auditor performs for each account above to determine the reasonableness of the cutoff.

When do most companies record sales returns and allowances?

Blank confirmations are considered less reliable than standard positive confirmations.

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

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

A confirmation is a type of audit evidence.

When an auditor uses negative confirmations,several factors must be considered.What are those factors?

The results of the tests of controls determine whether assessed control risk for sales and cash receipts needs to be revised.

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

When an auditor tests to determine if all existing accounts receivable are included in the aged trial balance,

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

The most important aspect of evaluating the client's method of obtaining a reliable cutoff is to

Which of the following is an accurate statement regarding the risk assessment process of phase I of the audit process for the sales and collection cycle?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls,

Completing the Tests in the Acquisition and Payment Cycle:

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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