Question 1

Analytical procedures:

Accepted Answer

A)  are only done during the planning of the audit and when performing detailed tests. 
B)  performed during the detailed testing phase are done before tests of details of balances. 
C)  performed during the detailed testing phase are done before the balance sheet date. 
D)  are performed only on accounts receivable, not on the entire sales and collection cycle. 
A)  are only done during the planning of the audit and when performing detailed tests. 
B)  performed during the detailed testing phase are done before tests of details of balances. 
C)  performed during the detailed testing phase are done before the balance sheet date. 
D)  are performed only on accounts receivable, not on the entire sales and collection cycle.

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

Auditing standards require the confirmation of accounts receivable in normal circumstances.What are the two exceptions to this requirement?

Accepted Answer

The two exceptions are:
1.The auditor co

Question 5

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

Accepted Answer

A) True 
 B)False

Question 6

Confirmation of accounts receivable provide evidence related to the existence,accuracy and cutoff objectives.

Accepted Answer

A) True 
 B)False

Question 7

A customer mails and records a check to a client for payment of an unpaid account on December 30.The client receives and records the amount on January 2.The records of the two organizations will be different on December 31.This represents:

Accepted Answer

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

Question 8

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

Accepted Answer

A)  Existence 
B)  Completeness 
C)  Rights 
D)  Detail tie-in 
A)  Existence 
B)  Completeness 
C)  Rights 
D)  Detail tie-in

Question 9

If material,all of the following are required to be separately disclosed in the financial statements except for:

Accepted Answer

A)  accounts receivable from officers. 
B)  accounts receivable from affiliates. 
C)  sales and assets for different business segments. 
D)  sales for the last ten days of the fiscal year. 
A)  accounts receivable from officers. 
B)  accounts receivable from affiliates. 
C)  sales and assets for different business segments. 
D)  sales for the last ten days of the fiscal year.

Question 10

A type of positive confirmation known as a blank confirmation:

Accepted Answer

A)  requests the recipient to fill in the amount of the balance. 
B)  is considered less reliable than the regular positive confirmation. 
C)  generates as high a response rate as the regular positive confirmation form. 
D)  is used when the auditor is confirming several small balances. 
A)  requests the recipient to fill in the amount of the balance. 
B)  is considered less reliable than the regular positive confirmation. 
C)  generates as high a response rate as the regular positive confirmation form. 
D)  is used when the auditor is confirming several small balances.

Question 11

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 12

Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 13

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 customer's purchase order and the duplicate sales invoice to determine that the merchandise was ordered. 
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 customer's purchase order and the duplicate sales invoice to determine that the merchandise was ordered.

Question 14

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 15

If the client's internal control for recording sales returns and allowances is evaluated as ineffective:

Accepted Answer

A)  a larger sample may be needed to verify cutoff. 
B)  sampling is not appropriate. 
C)  all sales returns must be traced to supporting documentation. 
D)  all sales returns must be confirmed with the customer. 
A)  a larger sample may be needed to verify cutoff. 
B)  sampling is not appropriate. 
C)  all sales returns must be traced to supporting documentation. 
D)  all sales returns must be confirmed with the customer.

Question 16

Recording a sale that did not occur violates the occurrence transaction-related audit objective and the existence balance-related audit objective.

Accepted Answer

A) True 
 B)False

Question 17

The balance-related audit objectives of realizable value and rights are not affected by assessed control risk.

Accepted Answer

A) True 
 B)False

Question 18

Analytical procedures are substantive tests and,if the results of the analytical procedures are favorable,the auditor would normally:

Accepted Answer

A)  reduce the extent of tests of details of balances. 
B)  reduce the extent of tests of controls. 
C)  reduce the tests of transactions. 
D)  reduce all of the other tests. 
A)  reduce the extent of tests of details of balances. 
B)  reduce the extent of tests of controls. 
C)  reduce the tests of transactions. 
D)  reduce all of the other tests.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

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

Analytical procedures:

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

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

Auditing standards require the confirmation of accounts receivable in normal circumstances.What are the two exceptions to this requirement?

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

Confirmation of accounts receivable provide evidence related to the existence,accuracy and cutoff objectives.

A customer mails and records a check to a client for payment of an unpaid account on December 30.The client receives and records the amount on January 2.The records of the two organizations will be different on December 31.This represents:

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

If material,all of the following are required to be separately disclosed in the financial statements except for:

A type of positive confirmation known as a blank confirmation:

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

Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

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?

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:

If the client's internal control for recording sales returns and allowances is evaluated as ineffective:

Recording a sale that did not occur violates the occurrence transaction-related audit objective and the existence balance-related audit objective.

The balance-related audit objectives of realizable value and rights are not affected by assessed control risk.

Analytical procedures are substantive tests and,if the results of the analytical procedures are favorable,the auditor would normally:

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

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.

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

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 Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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