Question 1

If you were to perform the following audit procedure-review accounts receivable trial balance for large and unusual receivables-what balance- related audit objective would this relate to?

Accepted Answer

The answer of If you were to perform the following...

Question 2

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

Accepted Answer

The answer of Assuming the client's internal controls are adequate,...

Question 3

Confirmations of accounts receivable are useful for evaluating several accounts receivable balance- related audit objectives, including existence, rights and realisable value.

Accepted Answer

A) True 
 B)False

Question 4

After items to be confirmed have been selected, the auditor must maintain control of the confirmations until:

Accepted Answer

A)  the responses are received by the client with the return mail. 
B)  the responses are received by the auditor from the customer. 
C)  the sealed envelopes are provided to client's personnel to be mailed. 
D)  the names are provided to the client's personnel to type the envelopes.

Question 5

Each auditee misstatement of accounts receivable must be analysed to determine whether it:

Accepted Answer

A)  is symptomatic of fraud. 
B)  is consistent with the original assessed level of control risk. 
C)  represents a timing difference. 
D)  all of the above

Question 6

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: trace accounts from the accounts receivable master file to the aged trial balance.

Accepted Answer

A)  Rights and obligations 
B)  Cutoff 
C)  Completeness 
D)  Presentation and disclosure

Question 7

Analytical procedures are substantive tests and, if the results of the analytical procedures are favourable, they will:

Accepted Answer

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

Question 8

to positive confirmations do NOT provide audit evidence.

Accepted Answer

A)  Follow- ups 
B)  Nonresponses 
C)  Responses 
D)  All of the above

Question 9

Which one of the following would NOT be a part of the approach used in determining the reasonableness of cutoff?

Accepted Answer

A)  Evaluate whether the client has established adequate procedures to ensure a reasonable cutoff. 
B)  Decide on the appropriate criteria for cutoff. 
C)  Review client's December 31 and January 2 entries for cutoff problems. 
D)  Test whether a reasonable cutoff was obtained.

Question 10

In the audit of accounts receivable, list the factors that affect the planned detection risk for tests of details of balances.

Accepted Answer

The answer of In the audit of accounts receivable, list...

Question 11

Cutoff misstatements occur when:

Accepted Answer

A)  the auditor mistakenly asks the bank for the end- of- year bank statement instead of the statement which would include the two succeeding weeks. 
B)  subsequent period transactions are recorded in the current period. 
C)  current period transactions are recorded in the subsequent period. 
D)  both B and C above, but not A

Question 12

Planned detection risk and planned evidence are directly related; that is, as planned detection risk increases, planned audit evidence for tests of details of balances also increases.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

When sending confirmations during most audits of accounts receivable, the emphasis should be on confirming larger and older accounts.

Accepted Answer

A) True 
 B)False

Question 15

If customers use voucher systems, they can confirm balance information but not individual invoices.

Accepted Answer

A) True 
 B)False

Question 16

The understatement of sales and accounts receivable is BEST uncovered by:

Accepted Answer

A)  confirming receivables. 
B)  test of transactions for shipments made but not recorded. 
C)  reviewing the aged trial balance. 
D)  reconciling the accounts receivable general ledger account with the schedule of accounts receivable.

Question 17

The auditor learns that collections of accounts receivable during the first ten days of January were entered as debits to cash and credits to accounts receivable as of December 31. The effect generally will be to:

Accepted Answer

A)  overstate working capital with no effect on the current ratio at December 31. 
B)  leave both working capital and the current ratio unchanged at December 31. 
C)  overstate both working capital and the current ratio at December 31. 
D)  overstate the current ratio with no effect on working capital at December 31.

Question 18

The accounts receivable balance- related audit objective net realisable value is not affected by assessed control risk for sales or cash receipts.

Accepted Answer

A) True 
 B)False

Question 19

It is easy to test for a cash receipts cutoff misstatement by tracing recorded cash receipts to subsequent- period bank deposits on the bank statement.

Accepted Answer

A) True 
 B)False

Question 20

The client's estimate of the total amount of uncollectible receivables is represented by:

Accepted Answer

A)  the bad debts expense account on the income statement. 
B)  the provision for doubtful debts account. 
C)  the accounts with credit balances in the accounts receivable subsidiary ledger. 
D)  footnote disclosure in the financial statements.

Exam 13: Completing Tests in the Sales and Collection Cycle: Accounts Receivable

If you were to perform the following audit procedure-review accounts receivable trial balance for large and unusual receivables-what balance- related audit objective would this relate to?

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

Confirmations of accounts receivable are useful for evaluating several accounts receivable balance- related audit objectives, including existence, rights and realisable value.

After items to be confirmed have been selected, the auditor must maintain control of the confirmations until:

Each auditee misstatement of accounts receivable must be analysed to determine whether it:

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: trace accounts from the accounts receivable master file to the aged trial balance.

Analytical procedures are substantive tests and, if the results of the analytical procedures are favourable, they will:

to positive confirmations do NOT provide audit evidence.

Which one of the following would NOT be a part of the approach used in determining the reasonableness of cutoff?

In the audit of accounts receivable, list the factors that affect the planned detection risk for tests of details of balances.

Cutoff misstatements occur when:

Planned detection risk and planned evidence are directly related; that is, as planned detection risk increases, planned audit evidence for tests of details of balances also increases.

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

When sending confirmations during most audits of accounts receivable, the emphasis should be on confirming larger and older accounts.

If customers use voucher systems, they can confirm balance information but not individual invoices.

The understatement of sales and accounts receivable is BEST uncovered by:

The auditor learns that collections of accounts receivable during the first ten days of January were entered as debits to cash and credits to accounts receivable as of December 31. The effect generally will be to:

The accounts receivable balance- related audit objective net realisable value is not affected by assessed control risk for sales or cash receipts.

It is easy to test for a cash receipts cutoff misstatement by tracing recorded cash receipts to subsequent- period bank deposits on the bank statement.

The client's estimate of the total amount of uncollectible receivables is represented by: