Question 1

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

Accepted Answer

A)  as close to the balance sheet date as possible. 
B)  at various times throughout the year to different segments of the sample, so that the entire sample is representative of account balances scattered throughout the year. 
C)  several months before the year-end, so the auditor will have adequate time to perform alternate procedures if they are required. 
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)  as close to the balance sheet date as possible. 
B)  at various times throughout the year to different segments of the sample, so that the entire sample is representative of account balances scattered throughout the year. 
C)  several months before the year-end, so the auditor will have adequate time to perform alternate procedures if they are required. 
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 2

Confirmation of accounts receivable balances normally provides evidence concerning the

Accepted Answer

A)  valuation of the balances. 
B)  rights of the balances. 
C)  existence of the balances. 
D)  completeness of the balances. 
A)  valuation of the balances. 
B)  rights of the balances. 
C)  existence of the balances. 
D)  completeness of the balances.

Question 3

The most effective audit evidence gathered for accounts receivable is the

Accepted Answer

A)  detail tie-in of the records. 
B)  analysis of the allowance for doubtful accounts. 
C)  confirmation of accounts receivable. 
D)  examination of sales invoices. 
A)  detail tie-in of the records. 
B)  analysis of the allowance for doubtful accounts. 
C)  confirmation of accounts receivable. 
D)  examination of sales invoices.

Question 4

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

Accepted Answer

When negative confirmations are used, th

Question 5

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 6

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

Question 7

A procedure to test for a cash receipts cutoff error is

Accepted Answer

A)  reconciling the bank statement. 
B)  performing a four-column proof-of-cash. 
C)  observing the counting of cash at the balance sheet date. 
D)  tracing recorded cash receipts to subsequent period bank deposits on the bank statement. 
A)  reconciling the bank statement. 
B)  performing a four-column proof-of-cash. 
C)  observing the counting of cash at the balance sheet date. 
D)  tracing recorded cash receipts to subsequent period bank deposits on the bank statement.

Question 8

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.

Question 9

Confirmation of accounts receivable provides evidence related to the ________ objectives.

Accepted Answer

A)  existence 
B)  accuracy 
C)  cutoff 
D)  all of the above 
A)  existence 
B)  accuracy 
C)  cutoff 
D)  all of the above

Question 10

Which of the following types of receivables would not deserve the special attention of the auditor?

Accepted Answer

A)  accounts receivables with credit balances 
B)  accounts that have been outstanding for a long time 
C)  receivables from related parties 
D)  Each of the above would receive special attention. 
A)  accounts receivables with credit balances 
B)  accounts that have been outstanding for a long time 
C)  receivables from related parties 
D)  Each of the above would receive special attention.

Question 11

Auditors perform both planning and substantive analytical procedures for the entire sales and collection cycle, not just accounts receivable.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Accepted Answer

The three situations are:
1. The overall

Question 14

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 15

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.

Question 16

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 17

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.

Question 18

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

Question 19

An auditor is performing a credit analysis of customers with balances over 60 days due. She is most likely obtaining evidence for which audit related objective?

Accepted Answer

A)  realizable value 
B)  existence 
C)  completeness 
D)  occurrence 
A)  realizable value 
B)  existence 
C)  completeness 
D)  occurrence

Question 20

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

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

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

Confirmation of accounts receivable balances normally provides evidence concerning the

The most effective audit evidence gathered for accounts receivable is the

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

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.

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

A procedure to test for a cash receipts cutoff error is

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

Confirmation of accounts receivable provides evidence related to the ________ objectives.

Which of the following types of receivables would not deserve the special attention of the auditor?

Auditors perform both planning and substantive analytical procedures for the entire sales and collection cycle, not just accounts receivable.

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

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

When do most companies record sales returns and allowances?

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

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

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?

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

An auditor is performing a credit analysis of customers with balances over 60 days due. She is most likely obtaining evidence for which audit related objective?

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

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 Materiality

Assessing the Risk of Material Misstatement

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, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

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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