Question 1

Auditors must maintain control of confirmations until they are returned from the customer.

Accepted Answer

A) True 
 B)False

Question 2

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 
A)  Excessive sales discounts 
B)  Unrecorded sales for the year 
C)  Unauthorized goods returned for credit 
D)  Lapping of year-end accounts receivable

Question 3

When should auditors not perform alternative procedures in testing the accounts receivable balance?

Accepted Answer

A)  When customers do not return positive confirmation requests. 
B)  When customers do not return negative confirmation requests. 
C)  When confirmations are deemed to be ineffective as an audit procedure. 
D)  When confirmations are too costly to use. 
A)  When customers do not return positive confirmation requests. 
B)  When customers do not return negative confirmation requests. 
C)  When confirmations are deemed to be ineffective as an audit procedure. 
D)  When confirmations are too costly to use.

Question 4

The balance-related audit objectives of realizable value and rights are not affected by assessed control risk.

Accepted Answer

A) True 
 B)False

Question 5

If the auditor decides not to confirm accounts receivable, the auditor should:

Accepted Answer

A)  always use alternative procedures to audit the accounts receivable. 
B)  include copies of customer statements in the audit files. 
C)  document the reasons for such a decision in the audit files. 
D)  include copies of customer sales invoices in the audit files. 
A)  always use alternative procedures to audit the accounts receivable. 
B)  include copies of customer statements in the audit files. 
C)  document the reasons for such a decision in the audit files. 
D)  include copies of customer sales invoices in the audit files.

Question 6

Generally accepted accounting principles require that revenue be reported net of sales returns and allowances:

Accepted Answer

A)  if practical. 
B)  if required by industry practice. 
C)  if the amounts are material. 
D)  any of the above. 
A)  if practical. 
B)  if required by industry practice. 
C)  if the amounts are material. 
D)  any of the above.

Question 7

The positive (as opposed to the negative) form of receivables confirmation may be preferred when:

Accepted Answer

A)  internal control surrounding accounts receivable is considered to be effective. 
B)  there is reason to believe that a substantial number of accounts may be in dispute. 
C)  a large number of small balances are involved. 
D)  there is reason to believe a significant portion of the requests will be made. 
A)  internal control surrounding accounts receivable is considered to be effective. 
B)  there is reason to believe that a substantial number of accounts may be in dispute. 
C)  a large number of small balances are involved. 
D)  there is reason to believe a significant portion of the requests will be made.

Question 8

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 9

Which of the following is likely to be determined first when performing tests of details for accounts receivable?

Accepted Answer

A)  Recorded accounts receivable exist. 
B)  Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger. 
C)  Accounts receivable are owned. 
D)  Existing accounts receivable are included. 
A)  Recorded accounts receivable exist. 
B)  Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly added and agrees with the general ledger. 
C)  Accounts receivable are owned. 
D)  Existing accounts receivable are included.

Question 10

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. 
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 11

Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure, which would normally include:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 12

An auditor selects a sample of shipping documents in order to determine if the related sales invoices were prepared. This test would gather evidence concerning which audit objective?

Accepted Answer

A)  Completeness 
B)  Detail tie-in 
C)  Occurrence 
D)  Realizable value 
A)  Completeness 
B)  Detail tie-in 
C)  Occurrence 
D)  Realizable value

Question 13

Tests of detail tie-in are normally conducted last in the audit of the sales and collections cycle.

Accepted Answer

A) True 
 B)False

Question 14

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:

Accepted Answer

A)  no reply to a positive confirmation request is received. 
B)  no reply to a negative confirmation request is received. 
C)  collectability of the receivables is in doubt. 
D)  pledging of the receivables is probable. 
A)  no reply to a positive confirmation request is received. 
B)  no reply to a negative confirmation request is received. 
C)  collectability of the receivables is in doubt. 
D)  pledging of the receivables is probable.

Question 15

Which of the following is the principle "weakness" of using negative confirmations for your tests of details of balances for accounts receivable?

Accepted Answer

A)  can only be used for large balance accounts 
B)  cannot not be used when account balances "bunch" around a mean value 
C)  conclusions drawn from receiving no reply may not be correct 
D)  response rates are generally too low to draw any conclusions 
A)  can only be used for large balance accounts 
B)  cannot not be used when account balances "bunch" around a mean value 
C)  conclusions drawn from receiving no reply may not be correct 
D)  response rates are generally too low to draw any conclusions

Question 16

For sales, the occurrence transaction-related audit objective affects which of the following balance-related audit objective?

Accepted Answer

A)  Existence 
B)  Completeness 
C)  Rights 
D)  Detail tie-in 
A)  Existence 
B)  Completeness 
C)  Rights 
D)  Detail tie-in

Question 17

Describe each of the following types of confirmations:
• Positive confirmation
• Blank confirmation
• Invoice confirmation
• Negative confirmation

Accepted Answer

• Positive confirmations are communicati

Question 18

A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance outstanding and by the amount of time the component parts have been outstanding, is the:

Accepted Answer

A)  customer list. 
B)  aged trial balance. 
C)  accounts receivable ledger. 
D)  schedule of accounts receivable. 
A)  customer list. 
B)  aged trial balance. 
C)  accounts receivable ledger. 
D)  schedule of accounts receivable.

Question 19

Because of its central role in auditing of accounts receivable, which of the following would normally be one of the first items tested?

Accepted Answer

A)  Accounts receivable master file 
B)  Customer file 
C)  Aged trial balance 
D)  Sales register 
A)  Accounts receivable master file 
B)  Customer file 
C)  Aged trial balance 
D)  Sales register

Question 20

Tests of details of balances must be designed for each balance-related audit objective.

Accepted Answer

A) True 
 B)False

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

Auditors must maintain control of confirmations until they are returned from the customer.

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

When should auditors not perform alternative procedures in testing the accounts receivable balance?

The balance-related audit objectives of realizable value and rights are not affected by assessed control risk.

If the auditor decides not to confirm accounts receivable, the auditor should:

Generally accepted accounting principles require that revenue be reported net of sales returns and allowances:

The positive (as opposed to the negative) form of receivables confirmation may be preferred when:

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

Which of the following is likely to be determined first when performing tests of details 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:

Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure, which would normally include:

An auditor selects a sample of shipping documents in order to determine if the related sales invoices were prepared. This test would gather evidence concerning which audit objective?

Tests of detail tie-in are normally conducted last in the audit of the sales and collections cycle.

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:

Which of the following is the principle "weakness" of using negative confirmations for your tests of details of balances for accounts receivable?

For sales, the occurrence transaction-related audit objective affects which of the following balance-related audit objective?

Describe each of the following types of confirmations: • Positive confirmation • Blank confirmation • Invoice confirmation • Negative confirmation

A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance outstanding and by the amount of time the component parts have been outstanding, is the:

Because of its central role in auditing of accounts receivable, which of the following would normally be one of the first items tested?

Tests of details of balances must be designed for each balance-related audit objective.

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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