Exam 11: Accounts Receivable, Notes Receivable, and Revenue

A CPA examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data.This is an example of a:

In your review of ABC Company's financials,you note that Receivables have increased approximately 200% from the previous year,while Cash has declined.Further investigation reveals that 70% of ABC's receivables were booked within 7 days of the end of the quarter.If financial statement fraud is involved,which type is most likely?

After the CPAs have selected particular accounts receivable for confirmation:

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?

Internal control over sales transactions is very important to the effectiveness of an organization. a.For effective control over credit sales,describe four major functions that should be segregated. b.In addition to adequate segregation of duties,describe two other internal controls over sales transactions.

When it is impossible to confirm accounts receivable,the auditors may be able to satisfy themselves as to the existence of accounts receivable by alternative procedures.

Which of the following is not true about the confirmation of accounts receivable?

The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation requests.Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?

The department approving a sales transaction should be the shipping department.

Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts?

An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts.

The audit working papers often include a client-prepared,aged trial balance of accounts receivable as of the balance sheet date.This aging is best used by the auditors to:

To verify that all sales that have been shipped to customers have been recorded,a test of transactions should be completed on a representative sample drawn from:

The auditor determines that both of the following objectives will be part of the audit of Anthony Co.For each of the following audit objectives,select the substantive test that would most likely provide support for the objective.A substantive test may be used once,more than once,or not at all. Objective Substantive tests 1. Verify existence of accounts receivable. 2. Determine that accounts receivable are valued at their net realizable value. 3. Determine that proper receivable disclosures are presented. Selection List A.Perform tests of subsequent cash receipts after the balance sheet date. B.Review and assess an aging schedule of accounts receivable. C.Compare recognized revenue to related industry statistics. D.Tour the storage facility for inventory to determine adequacy of security controls. E.Perform receiving cutoff procedures. F.Review payments to vendors subsequent to year-end. G.Read the financial statements (including notes)for completeness. 4.The existence of which of the following is most likely to increase audit risk in an audit client? A.Anthony Co.was started as a local family business and has received additional funding over the years from several investors. B.A new CFO is redesigning Anthony Co.'s accounting policies and procedures. C.Anthony Co.consists of three core business operations: product sales in its retail store,product sales to food and specialty stores,and food services. D.Anthony Co.experienced significant sales growth during its history and continues to expand its product offerings and market reach. 5.Which of the following is most likely to increase days' sales in accounts receivable at the end of the year for Anthony Co.? A.Credit terms were restricted on several large accounts during the current year. B.Operating expenses increased at a higher rate than sales revenue. C.Sales revenue increased at a higher rate than operating expenses. D.A smaller percentage of sales occurred during the last month of the year,as compared to the prior year. E.A larger percentage of sales occurred during the last month of the year,as compared to the prior year.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal control over the revenue cycle?

Recognizing a loan received as revenue instead of as a liability has a positive effect on the reported financial statements for all of the following except:

Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?

Which of the following generally provides the least evidence regarding the valuation of the allowance for doubtful accounts?

Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable.