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

Tests of the presentation and disclosure-related objectives are generally done as part of the completion phase of the audit.

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

For retailers, the auditor should examine supporting documentation for a sample of sales returns and allowances recorded for several weeks after year end to determine if the allowance for returns and allowances is adequate.

When analytical procedures in the sales and collection cycle uncover unusual fluctuations, the auditor should make additional inquiries of management.

Which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable?

Which of the following is the principle "weakness" of using negative confirmations for the tests of details of balances for accounts receivable?

For which of the following accounts is cutoff least important?

A positive confirmation is more reliable evidence than a negative confirmation because

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

A type of positive confirmation in which an individual invoice is confirmed, rather than the customer's entire accounts receivable balance, is the ________ confirmation.

Tests of detail tie-in are normally conducted last in the audit of the sales and collections cycle.

If sales returns and allowances and write-off of uncollectible accounts receivable are significant, the assessed control risk must be considered for these two classes of transactions.

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

List three of the major factors affecting sample size for confirming accounts receivable.

Most tests of accounts receivable are based on what schedule, file, or listing?

It is common for clients to unintentionally or fraudulently misstate the allowance for doubtful accounts due to the difficulty in estimating the correct balance in this account.

For most audits, a proper cash receipts cutoff is less important than either the sales or the sales returns and allowances cutoff since cash only affects the balance sheet, and not earnings.

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

The auditor has a balance-related audit objective to determine that accounts receivable are appropriately aggregated, and related financial statement disclosures are relevant and understandable. Which of the following audit procedures would the auditor not perform in connection with this audit objective?

To determine if the client has rights to the accounts receivable on the trial balance, the auditor should inquire of management if any receivables are pledged or factored.