Question 1

Communication addressed to the debtor requesting confirmation on whether the balance as stated on the communication is correct or incorrect is known as a:

Accepted Answer

A)  negative confirmation. 
B)  positive confirmation. 
C)  bank confirmation. 
D)  management letter.

Question 2

A positive confirmation is more reliable evidence than a negative confirmation because:

Accepted Answer

A)  fewer confirmations can be sent out. 
B)  the debtor's lack of response indicates agreement with the stated balance. 
C)  the auditor has a document which can be used in court. 
D)  follow-up procedures can be performed if a response is not received from the debtor.

Question 3

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)  Review the client's December 31 and January 2 entries for cutoff problems. 
C)  Decide on the appropriate criteria for cutoff. 
D)  Test whether a reasonable cutoff was obtained.

Question 4

What is the most important test of details of balances for accounts receivable?

Accepted Answer

A)  obtaining confirmations from the client's customers 
B)  recalculating 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 5

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 6

Describe how the auditor tests the rights objective for accounts receivable.

Accepted Answer

The answer of Describe how the auditor tests the rights...

Question 7

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 auditor to:

Accepted Answer

A)  evaluate internal control over credit sales. 
B)  estimate credit losses. 
C)  test the accuracy of recorded charge sales. 
D)  verify the validity of the recorded receivables.

Question 8

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

Accepted Answer

A)  a sample of sales returns and allowances subsequent to closing date are examined. 
B)  all sales returns must be traced to supporting documentation. 
C)  a larger sample is needed to verify cutoff. 
D)  all sales returns must be confirmed with the customer.

Question 9

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,...

Exam 13: Completing tests in the sales and collection cycle: Accounts receivable