Question 1

For sales, the completeness transaction-related audit objective affects the existence balance-related audit objective.

Accepted Answer

A) True 
 B)False

Question 2

It is acceptable under generally accepted accounting principles for the client to include material related party receivables together with trade receivables on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 3

How might the auditor determine whether a client has limited rights to accounts receivable?

Accepted Answer

A)   
B)   
C)   
D)

Question 4

Describe each of the following types of confirmations:
• positive confirmation
• blank confirmation
• invoice confirmation
• negative confirmation

Accepted Answer

The answer of Describe each of the following types of...

Question 5

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.

Question 6

Negative confirmations normally require a larger sample size than positive confirmations.

Accepted Answer

A) True 
 B)False

Question 7

It is not common for audit clients to misstate cutoff either by error or through fraud.

Accepted Answer

A) True 
 B)False

Question 8

For most audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash

Accepted Answer

A)  is detected and correct when cash is separately audited. 
B)  is unlikely to have a material impact on the balance sheet or the income statement. 
C)  affects items on the balance sheet but does not affect net income. 
D)  rarely occurs given the control consciousness of most entities.

Question 9

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.

Question 10

Tests of the realizable value balance-related audit objective are for the purpose of evaluating the allowance for doubtful accounts.

Accepted Answer

A) True 
 B)False

Question 11

Stratification of accounts receivable is desirable when using confirmations.

Accepted Answer

A) True 
 B)False

Question 12

When determining the timing of the accounts receivable confirmations,

Accepted Answer

A)  the receivables cannot be confirmed at an interim date. 
B)  if accounts receivable are confirmed before year-end, the auditor typically prepares a roll-forward schedule. 
C)  if the receivables are confirmed at an interim date, they must also be confirmed at year-end. 
D)  if internal controls are adequate, the accounts receivable must be confirmed at year-end.

Question 13

Briefly describe the circumstances in which it is acceptable to use negative confirmation requests.

Accepted Answer

The answer of Briefly describe the circumstances in which it...

Question 14

Describe three audit procedures an auditor would use to test for the realizable value balance-related audit objective.

Accepted Answer

The answer of Describe three audit procedures an auditor would...

Question 15

The auditor assesses inherent risk for accounts receivable, considering client risk and the nature of the audit client and the nature of the industry which the client is operating in.

Accepted Answer

A) True 
 B)False

Question 16

When making the sampling decisions for accounts receivable confirmations,

Accepted Answer

A)  it is important to sample some items for every material segment of the population. 
B)  if management refuses to allow the auditor to send confirmation requests to certain customers, the auditor must withdraw from the engagement. 
C)  inherent risk does not impact the sample size. 
D)  stratification of the sample is discouraged under current auditing standards.

Question 17

Cutoff misstatements can occur for sales, sales returns, and cash receipts. List below the threefold approach an auditor performs for each account above to determine the reasonableness of the cutoff.

Accepted Answer

The answer of Cutoff misstatements can occur for sales, sales...

Question 18

The auditor studies the client's industry and external environment, and also evaluates management objectives and business processes to identify significant client risks that could affect the accounts receivable balance.

Accepted Answer

A) True 
 B)False

Question 19

To test for the completeness balance-related audit objective, the auditor should review the accounts receivable trial balance for large or unusual items.

Accepted Answer

A) True 
 B)False

Question 20

Which audit procedure would be used to test for the existence balance-related audit objective?

Accepted Answer

A)  Trace ten accounts from the aged trial balance to the accounts receivable master file. 
B)  Confirm accounts receivable. 
C)  Review large sales returns and allowances before and after the balance sheet date. 
D)  Trace ten accounts from the trial balance to the accounts on the master file.

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

For sales, the completeness transaction-related audit objective affects the existence balance-related audit objective.

It is acceptable under generally accepted accounting principles for the client to include material related party receivables together with trade receivables on the balance sheet.

How might the auditor determine whether a client has limited rights to accounts receivable?

Describe each of the following types of confirmations: • positive confirmation • blank confirmation • invoice confirmation • negative confirmation

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

Negative confirmations normally require a larger sample size than positive confirmations.

It is not common for audit clients to misstate cutoff either by error or through fraud.

For most audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash

A type of positive confirmation known as a blank confirmation

Tests of the realizable value balance-related audit objective are for the purpose of evaluating the allowance for doubtful accounts.

Stratification of accounts receivable is desirable when using confirmations.

When determining the timing of the accounts receivable confirmations,

Briefly describe the circumstances in which it is acceptable to use negative confirmation requests.

Describe three audit procedures an auditor would use to test for the realizable value balance-related audit objective.

The auditor assesses inherent risk for accounts receivable, considering client risk and the nature of the audit client and the nature of the industry which the client is operating in.

When making the sampling decisions for accounts receivable confirmations,

Cutoff misstatements can occur for sales, sales returns, and cash receipts. List below the threefold approach an auditor performs for each account above to determine the reasonableness of the cutoff.

The auditor studies the client's industry and external environment, and also evaluates management objectives and business processes to identify significant client risks that could affect the accounts receivable balance.

To test for the completeness balance-related audit objective, the auditor should review the accounts receivable trial balance for large or unusual items.

Which audit procedure would be used to test for the existence balance-related audit objective?