Question 1

Many manufacturing and merchandising audit clients record sales based on shipment of goods criterion and make the necessary adjustments at period end to record revenues in the proper period.

Accepted Answer

A) True 
 B)False

Question 2

Below are listed possible misstatements that could occur in the sales and collections cycle. Provide the analytical procedure that would be most useful in detecting the possible misstatement.
a. overstatement of sales and accounts receivable
b. uncollectible accounts receivable that have not been provided for
c. overstatement of sales returns and allowances

Accepted Answer

The answer of Below are listed possible misstatements that could...

Question 3

The auditor is reviewing the receivables listed on the aged trial balance for notes and related party receivables. Which balance-related audit objective is he trying to satisfy?

Accepted Answer

A)  detail tie-in 
B)  existence 
C)  classification 
D)  all of the above

Question 4

The auditor must have a thorough understanding of the accounting standards, including presentation and disclosure requirements, for accounts receivable when performing the audit of accounts receivable.

Accepted Answer

A) True 
 B)False

Question 5

Both U.S. and international auditing standards require the use of confirmations for accounts receivable.

Accepted Answer

A) True 
 B)False

Question 6

The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is

Accepted Answer

A)  confirmations. 
B)  recalculation of 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 7

The net realizable value of accounts receivable is equal to:

Accepted Answer

A)  gross accounts receivable less allowance for uncollectible accounts. 
B)  gross accounts receivable less bad debt expense. 
C)  gross accounts receivable less returns and allowances. 
D)  gross accounts receivable less sales discounts.

Question 8

Negative confirmations are less expensive, and less reliable, than positive confirmations.

Accepted Answer

A) True 
 B)False

Question 9

Audit data analytics can be used to test accuracy of invoices outstanding at the end of the year by matching these invoices to subsequent cash receipts after year-end.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a correct statement regarding analytical procedures?

Accepted Answer

A)  If an auditor identifies a possible misstatement in sales using analytical procedures, accounts payable will be the likely offsetting misstatement. 
B)  Auditors should also compare the results of their analytical procedures to budgets and industry trends. 
C)  If sales are overstated, the income statement will be incorrect, but the balance sheet will be correct. 
D)  If an analytical procedure uncovers an unusual fluctuation, the auditor must assume fraud is involved.

Question 11

For cash receipts, the occurrence transaction-related audit objective affects which of the following balance-related audit objectives?

Accepted Answer

A)  existence 
B)  completeness 
C)  rights 
D)  detail tie-in

Question 12

The auditor can use audit data analytics to identify potential situations where sales returns are understated or the allowance for doubtful accounts is understated for specific customers.

Accepted Answer

A) True 
 B)False

Question 13

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk.

Accepted Answer

A) True 
 B)False

Question 14

A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31. This represents

Accepted Answer

A)   
B)   
C)   
D)

Question 15

Confirmation is the most common test of details of balances for the accuracy of accounts receivable.

Accepted Answer

A) True 
 B)False

Question 16

The confirmations must be mailed by the auditor, but should contain the return address of the client.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following most likely would be detected by a review of a client's sales cutoff?

Accepted Answer

A)  excessive sales discounts 
B)  unrecorded sales for the year 
C)  unauthorized goods returned for credit 
D)  lapping of year-end accounts receivable

Question 18

The most important test of details of balances to determine the existence of recorded accounts receivable is

Accepted Answer

A)  tracing details of sales invoices to shipping documents. 
B)  tracing the credits in accounts receivable to bank deposits. 
C)  tracing sales returns entries to credit memos issued and receiving room reports. 
D)  the confirmation of customers' balances.

Question 19

After the auditor is satisfied with the allowance for uncollectible accounts, it is easy to verify bad debt expense.

Accepted Answer

A) True 
 B)False

Question 20

Recording a sale that did not occur violates the occurrence transaction-related audit objective and the existence balance-related audit objective.

Accepted Answer

A) True 
 B)False

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

Many manufacturing and merchandising audit clients record sales based on shipment of goods criterion and make the necessary adjustments at period end to record revenues in the proper period.

The auditor is reviewing the receivables listed on the aged trial balance for notes and related party receivables. Which balance-related audit objective is he trying to satisfy?

The auditor must have a thorough understanding of the accounting standards, including presentation and disclosure requirements, for accounts receivable when performing the audit of accounts receivable.

Both U.S. and international auditing standards require the use of confirmations for accounts receivable.

The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is

The net realizable value of accounts receivable is equal to:

Negative confirmations are less expensive, and less reliable, than positive confirmations.

Audit data analytics can be used to test accuracy of invoices outstanding at the end of the year by matching these invoices to subsequent cash receipts after year-end.

Which of the following is a correct statement regarding analytical procedures?

For cash receipts, the occurrence transaction-related audit objective affects which of the following balance-related audit objectives?

The auditor can use audit data analytics to identify potential situations where sales returns are understated or the allowance for doubtful accounts is understated for specific customers.

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk.

A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31. This represents

Confirmation is the most common test of details of balances for the accuracy of accounts receivable.

The confirmations must be mailed by the auditor, but should contain the return address of the client.

Which of the following most likely would be detected by a review of a client's sales cutoff?

The most important test of details of balances to determine the existence of recorded accounts receivable is

After the auditor is satisfied with the allowance for uncollectible accounts, it is easy to verify bad debt expense.

Recording a sale that did not occur violates the occurrence transaction-related audit objective and the existence balance-related audit objective.