Exam 11: Accounts Receivable, Notes Receivable, and Revenue

You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact that:

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

Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control?

Which of the following would indicate the need to use positive accounts receivable confirmation requests?

It is sometimes impossible for the auditors to use normal accounts receivable confirmation procedures. In such situations, the best alternative procedure the auditors might resort to would be:

Which of the following manipulations would understate receivables on the financial statements?

To obtain the best evidence regarding the completeness of recorded accounts receivable, the auditors:

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.

Confirmation of accounts receivable is presumptively a mandatory audit procedure. In performing this procedure, auditors use positive confirmation requests or negative confirmation requests or a combination of both. a. Describe three conditions which should exist for the auditors to use the negative form of request. b. If a response is not received to an initial positive confirmation request, describe the action that should be taken by the auditors, including a discussion of alternative auditing procedures.

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 department approving a sales transaction should be the shipping department.

To test the existence assertion for recorded receivables, an auditor would select a sample from the:

After the CPAs have selected particular accounts receivable for confirmation:

Confirmation of accounts receivable provides some assurance that no lapping or other manipulation affecting accounts receivable is being carried on.

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

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

Once a CPA has determined that accounts receivable have increased due to slow collections in a "tight money" environment, the CPA would be likely to:

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?

Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

CPAs use negative accounts receivable confirmation requests more frequently than positive accounts receivable confirmation requests.