Question 1

Is the confirmation of cash and accounts receivable required according to auditing standards? Explain.

Accepted Answer

The CPA Canada Handbook considers confirmation of bank balances and accounts receivable to be a standard audit procedure. Section 5303.28 of the Handbook requires the confirmation of trade accounts receivable except in the following circumstances: (1) the combined level of inherent risk and control risk is low and other substantive procedures would provide sufficient, appropriate evidence; or (2) confirmation would be ineffective in providing reliable evidence. In addition, auditing standards apply only to material items-if the accounts receivable balance is not material, then other procedures such as analytical review may be sufficient. Usually confirmations are in writing, which provides better evidence than verbal enquiries.

Question 2

An auditor should trace cancelled cheques and cleared deposits for the last part of the current audit period and the first part of the subsequent period to detect whether ________.

Accepted Answer

A)  the cash receipts journal was held open for a few days after the year-end 
B)  the last cheques recorded before the year-end were actually mailed by the year-end 
C)  cash balances were overstated because of kiting 
D)  any unusual payments to or receipts from related parties occurred 
A)  the cash receipts journal was held open for a few days after the year-end 
B)  the last cheques recorded before the year-end were actually mailed by the year-end 
C)  cash balances were overstated because of kiting 
D)  any unusual payments to or receipts from related parties occurred C

Question 3

In the course of examining the cutoff bank statement for a client, an auditor is puzzled to discover that none of the cheques listed as outstanding on the year-end bank reconciliation has cleared the bank. This could be an indication that the client ________.

Accepted Answer

A)  is engaged in kiting 
B)  has overstated the year-end balance of cash 
C)  mailed the cheques to vendors after the year-end 
D)  left the cash receipts journal open after the year-end. 
A)  is engaged in kiting 
B)  has overstated the year-end balance of cash 
C)  mailed the cheques to vendors after the year-end 
D)  left the cash receipts journal open after the year-end. C

Question 4

Fidelity bonds can help prevent and detect embezzlement.

Accepted Answer

A) True 
 B)False

Question 5

A customer replies to a positive confirmation as follows: "We dispute the $250 charge from your client as the goods were never received." This confirmation ________.

Accepted Answer

A)  provides evidence of existence but not valuation 
B)  does not provide evidence of existence so valuation is irrelevant 
C)  provides evidence that the goods were never shipped 
D)  provides evidence that the account should be written off 
A)  provides evidence of existence but not valuation 
B)  does not provide evidence of existence so valuation is irrelevant 
C)  provides evidence that the goods were never shipped 
D)  provides evidence that the account should be written off

Question 6

Money laundering refers to the proper processing of cash receipts.

Accepted Answer

A) True 
 B)False

Question 7

In a manual system for the recording of cash receipts, the same person should make the journal entries to the control account and the subsidiary records.

Accepted Answer

A) True 
 B)False

Question 8

In a manual data processing system, the custody of cash and the recording of cash receipts in the cash journal should be combined for maximum control.

Accepted Answer

A) True 
 B)False

Question 9

One of the key assertions to consider in obtaining evidence about accounts receivable is completeness.

Accepted Answer

A) True 
 B)False

Question 10

Define the response rate as it pertains to positive accounts receivable confirmations. Describe methods that can be utilized to increase the response rate.

Accepted Answer

Response rate is the portion of total co

Question 11

In evaluating the adequacy of the allowance for doubtful accounts, an auditor is most likely to review the aging of receivables as evidence and support for management's financial statement assertion of ________.

Accepted Answer

A)  existence or occurrence 
B)  valuation or allocation 
C)  completeness 
D)  rights and obligations 
A)  existence or occurrence 
B)  valuation or allocation 
C)  completeness 
D)  rights and obligations

Question 12

An unrecorded cheque issued during the last week of the year would most likely be discovered by the auditor when the ________.

Accepted Answer

A)  cheque register for the last month is reviewed 
B)  cutoff bank statement is reconciled 
C)  bank confirmation is reviewed 
D)  search for unrecorded liabilities is performed 
A)  cheque register for the last month is reviewed 
B)  cutoff bank statement is reconciled 
C)  bank confirmation is reviewed 
D)  search for unrecorded liabilities is performed

Question 13

To gather evidence about transactions with related parties, an auditor would most likely ________.

Accepted Answer

A)  send account confirmations 
B)  perform analysis of receivables turnover 
C)  scan the receivables sub-ledger for credit balances 
D)  scan the aged trial balance for names of officers and directors 
A)  send account confirmations 
B)  perform analysis of receivables turnover 
C)  scan the receivables sub-ledger for credit balances 
D)  scan the aged trial balance for names of officers and directors

Question 14

In which of the following circumstances is the use of the negative form of accounts receivable confirmation most likely to be justified?

Accepted Answer

A)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
B)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
C)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
D)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
A)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
B)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
C)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
D)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

Question 15

Which of the following controls is most likely to help ensure that all credit sales transactions are recorded?

Accepted Answer

A)  The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. 
B)  The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. 
C)  The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers. 
D)  The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal. 
A)  The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. 
B)  The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. 
C)  The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers. 
D)  The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal.

Question 16

Which of the following lists outlines the best order for a typical sequence of activities in the revenue and collection cycle?

Accepted Answer

A)  Delivering goods, billing customers, credit granting, collection activity. 
B)  Customer ordering, delivering goods, billing customer, cash receipts. 
C)  Customer ordering, delivering goods, credit granting, collection activity. 
D)  Credit granting, billing customers, delivering goods, cash receipts. 
A)  Delivering goods, billing customers, credit granting, collection activity. 
B)  Customer ordering, delivering goods, billing customer, cash receipts. 
C)  Customer ordering, delivering goods, credit granting, collection activity. 
D)  Credit granting, billing customers, delivering goods, cash receipts.

Question 17

A cutoff bank statement is a special statement printed by the bank which does not include all paid cheques and deposit slips.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following audit procedures is the most effective when testing sales for understatement?

Accepted Answer

A)  Scrutinize the accounts receivable aged trial balance. 
B)  Confirm a sample of recorded accounts receivable. 
C)  Trace a sample of shipping documents to sales invoices recorded in the sales journal. 
D)  Vouch a sample of recorded sales from the sales journal to shipping documents. 
A)  Scrutinize the accounts receivable aged trial balance. 
B)  Confirm a sample of recorded accounts receivable. 
C)  Trace a sample of shipping documents to sales invoices recorded in the sales journal. 
D)  Vouch a sample of recorded sales from the sales journal to shipping documents.

Question 19

When the credit manager decides a customer's account is considered to be uncollectible, the decision should be reviewed by the controller to ________.

Accepted Answer

A)  ensure the bad debts account is within budget 
B)  ensure the credit manager has not written off the account as a favour to a friend 
C)  begin a lawsuit to collect the money 
D)  inform the police 
A)  ensure the bad debts account is within budget 
B)  ensure the credit manager has not written off the account as a favour to a friend 
C)  begin a lawsuit to collect the money 
D)  inform the police

Question 20

Which of the following internal control procedures is most likely to ensure that all billed sales are correctly posted to the accounts receivable subsidiary ledger?

Accepted Answer

A)  Daily sales summaries are compared to daily postings to the accounts receivable subsidiary ledger. 
B)  Each sales invoice is supported by a pre-numbered shipping document. 
C)  The accounts receivable subsidiary ledger is reconciled daily to the control account in the general ledger. 
D)  Each shipment on credit is supported by a pre-numbered sales invoice. 
A)  Daily sales summaries are compared to daily postings to the accounts receivable subsidiary ledger. 
B)  Each sales invoice is supported by a pre-numbered shipping document. 
C)  The accounts receivable subsidiary ledger is reconciled daily to the control account in the general ledger. 
D)  Each shipment on credit is supported by a pre-numbered sales invoice.

Exam 11: The Revenues, Receivables, and Receipts Process and Cash Account Balance

Is the confirmation of cash and accounts receivable required according to auditing standards? Explain.

An auditor should trace cancelled cheques and cleared deposits for the last part of the current audit period and the first part of the subsequent period to detect whether ________.

In the course of examining the cutoff bank statement for a client, an auditor is puzzled to discover that none of the cheques listed as outstanding on the year-end bank reconciliation has cleared the bank. This could be an indication that the client ________.

Fidelity bonds can help prevent and detect embezzlement.

A customer replies to a positive confirmation as follows: "We dispute the $250 charge from your client as the goods were never received." This confirmation ________.

Money laundering refers to the proper processing of cash receipts.

In a manual system for the recording of cash receipts, the same person should make the journal entries to the control account and the subsidiary records.

In a manual data processing system, the custody of cash and the recording of cash receipts in the cash journal should be combined for maximum control.

One of the key assertions to consider in obtaining evidence about accounts receivable is completeness.

Define the response rate as it pertains to positive accounts receivable confirmations. Describe methods that can be utilized to increase the response rate.

In evaluating the adequacy of the allowance for doubtful accounts, an auditor is most likely to review the aging of receivables as evidence and support for management's financial statement assertion of ________.

An unrecorded cheque issued during the last week of the year would most likely be discovered by the auditor when the ________.

To gather evidence about transactions with related parties, an auditor would most likely ________.

In which of the following circumstances is the use of the negative form of accounts receivable confirmation most likely to be justified?

Which of the following controls is most likely to help ensure that all credit sales transactions are recorded?

Which of the following lists outlines the best order for a typical sequence of activities in the revenue and collection cycle?

A cutoff bank statement is a special statement printed by the bank which does not include all paid cheques and deposit slips.

Which of the following audit procedures is the most effective when testing sales for understatement?

When the credit manager decides a customer's account is considered to be uncollectible, the decision should be reviewed by the controller to ________.

Which of the following internal control procedures is most likely to ensure that all billed sales are correctly posted to the accounts receivable subsidiary ledger?

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Purchases, Payables, and Payments Process

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue Theaudit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

Part I the Audit of Accounting Estimates: Basic Material Relating to Accountingestimates

Legal Liability Cases

Other Professional Accounting Services and Reports, Including Fraud

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