Question 1

The confirmations must be mailed by the auditor,but should contain the return address of the client.

Accepted Answer

A) True 
 B)False

Question 2

Generally accepted accounting principles require that revenue be reported net of sales returns and allowances

Accepted Answer

A) if practical. 
B) if required by industry practice. 
C) if the amounts are material. 
D) any of the above 
A) if practical. 
B) if required by industry practice. 
C) if the amounts are material. 
D) any of the above

Question 3

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.

Accepted Answer

The primary advantage of negative confir

Question 4

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk.

Accepted Answer

A) True 
 B)False

Question 5

An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years.A possible misstatement this procedure could uncover is

Accepted Answer

A) overstatement or understatement of sales. 
B) overstatement or understatement of accounts receivable. 
C) overstatement or understatement of bad debt expense. 
D) overstatement or understatement of sales returns and allowances. 
A) overstatement or understatement of sales. 
B) overstatement or understatement of accounts receivable. 
C) overstatement or understatement of bad debt expense. 
D) overstatement or understatement of sales returns and allowances.

Question 6

How might the auditor determine whether a client has limited rights to accounts receivable?

Accepted Answer

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

Question 7

For cash receipts,the occurrence transaction-related audit objective affects which of the following balance-related audit objectives?

Accepted Answer

A) existence 
B) completeness 
C) rights 
D) detail tie-in 
A) existence 
B) completeness 
C) rights 
D) detail tie-in

Question 8

When should auditors not perform alternative procedures in testing the accounts receivable balance?

Accepted Answer

A) when customers do not return positive confirmation requests 
B) when customers do not return negative confirmation requests 
C) when confirmations are deemed to be ineffective as an audit procedure 
D) when confirmations are too costly to use 
A) when customers do not return positive confirmation requests 
B) when customers do not return negative confirmation requests 
C) when confirmations are deemed to be ineffective as an audit procedure 
D) when confirmations are too costly to use

Question 9

The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is

Accepted Answer

A) confirmations. 
B) recalculation of the aged receivables and uncollectible accounts. 
C) tracing credit memos for returned merchandise to receiving room reports. 
D) tracing from shipping documents to journals to the accounts receivable ledger. 
A) confirmations. 
B) recalculation of the aged receivables and uncollectible accounts. 
C) tracing credit memos for returned merchandise to receiving room reports. 
D) tracing from shipping documents to journals to the accounts receivable ledger.

Question 10

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

Accepted Answer

A) excessive sales discounts 
B) unrecorded sales for the year 
C) unauthorized goods returned for credit 
D) lapping of year-end accounts receivable 
A) excessive sales discounts 
B) unrecorded sales for the year 
C) unauthorized goods returned for credit 
D) lapping of year-end accounts receivable

Question 11

The criterion used by most merchandising and manufacturing clients for determining when revenue recognition takes place is whether title to the goods has passed.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

For sales,the occurrence transaction-related audit objective affects which of the following balance-related audit objectives?

Accepted Answer

A) existence 
B) completeness 
C) rights 
D) detail tie-in 
A) existence 
B) completeness 
C) rights 
D) detail tie-in

Question 14

For most audits,revenue recognition is considered to be a significant risk.

Accepted Answer

A) True 
 B)False

Question 15

Negative confirmations are less expensive,and less reliable,than positive confirmations.

Accepted Answer

A) True 
 B)False

Question 16

U.S.auditing standards indicate that auditors should use external confirmations for accounts receivable.However,there are certain circumstances where confirmation may not be appropriated.List these three situations.

Accepted Answer

The three situations are:
1. The overall

Question 17

Auditors use the results of the substantive tests of transactions of sales and the collection cycle to determine the extent to which inherent risk is satisfied for each accounts receivable balance-related audit objective.

Accepted Answer

A) True 
 B)False

Question 18

The positive (as opposed to the negative)form of receivables confirmation may be preferred when

Accepted Answer

A) internal control surrounding accounts receivable is considered to be effective. 
B) there is reason to believe that a substantial number of accounts may be in dispute. 
C) a large number of small balances are involved. 
D) the auditor believes that the recipients of the confirmations will give the requests adequate consideration. 
A) internal control surrounding accounts receivable is considered to be effective. 
B) there is reason to believe that a substantial number of accounts may be in dispute. 
C) a large number of small balances are involved. 
D) the auditor believes that the recipients of the confirmations will give the requests adequate consideration.

Question 19

Both U.S.and international auditing standards require the use of confirmations for accounts receivable.

Accepted Answer

A) True 
 B)False

Question 20

The two primary classes of transactions in the sales and collection cycle are

Accepted Answer

A) sales and sales discounts. 
B) sales and cash receipts. 
C) sales and sales returns. 
D) sales and accounts receivable. 
A) sales and sales discounts. 
B) sales and cash receipts. 
C) sales and sales returns. 
D) sales and accounts receivable.

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

The confirmations must be mailed by the auditor,but should contain the return address of the client.

Generally accepted accounting principles require that revenue be reported net of sales returns and allowances

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk.

An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years.A possible misstatement this procedure could uncover is

How might the auditor determine whether a client has limited rights to accounts receivable?

For cash receipts,the occurrence transaction-related audit objective affects which of the following balance-related audit objectives?

When should auditors not perform alternative procedures in testing the accounts receivable balance?

The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is

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

The criterion used by most merchandising and manufacturing clients for determining when revenue recognition takes place is whether title to the goods has passed.

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

For sales,the occurrence transaction-related audit objective affects which of the following balance-related audit objectives?

For most audits,revenue recognition is considered to be a significant risk.

Negative confirmations are less expensive,and less reliable,than positive confirmations.

U.S.auditing standards indicate that auditors should use external confirmations for accounts receivable.However,there are certain circumstances where confirmation may not be appropriated.List these three situations.

Auditors use the results of the substantive tests of transactions of sales and the collection cycle to determine the extent to which inherent risk is satisfied for each accounts receivable balance-related audit objective.

The positive (as opposed to the negative)form of receivables confirmation may be preferred when

Both U.S.and international auditing standards require the use of confirmations for accounts receivable.

The two primary classes of transactions in the sales and collection cycle are

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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

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Completing the Tests in the Acquisition and Payment Cycle:

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