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

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared.This test is to satisfy the audit objective of:

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

A high inherent risk increases planned detection risk and decreases planned substantive tests.

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

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:

When designing tests of details of balances,an important point to remember is:

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

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

Assuming the client's internal controls are adequate,describe how the auditor can verify proper cutoff of sales transactions.

The appropriate and sufficient evidence to be obtained from tests of details must be decided on an:

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

Blank confirmations are considered less reliable than standard positive confirmations.

Stratification of accounts receivable is desirable when using confirmations.

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

Which of the following audit procedure would normally be included in the audit plan when auditing the allowance for doubtful accounts?

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

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

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.

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

For most audits,a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash: