Question 1

An auditor would be least likely to use confirmations in connection with the examination of:

Accepted Answer

A)  inventories. 
B)  long-term debt. 
C)  property, plant, and equipment. 
D)  stockholders' equity. 
A)  inventories. 
B)  long-term debt. 
C)  property, plant, and equipment. 
D)  stockholders' equity.

Question 2

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)    
A)    
B)    
C)    
D)

Question 3

Which of the following types of receivables would not deserve the special attention of the auditor?

Accepted Answer

A)  Accounts receivables with credit balances. 
B)  Accounts that have been outstanding for a long time. 
C)  Receivables from related parties. 
D)  Each of the above would receive special attention. 
A)  Accounts receivables with credit balances. 
B)  Accounts that have been outstanding for a long time. 
C)  Receivables from related parties. 
D)  Each of the above would receive special attention.

Question 4

Confirmation of accounts receivable provide evidence related to the existence, accuracy and cutoff objectives.

Accepted Answer

A) True 
 B)False

Question 5

You are auditing Rodgers and Company and have noticed that accounts receivables have increased from the previous year because of financial problems with its customers. Your likely first response would be to:

Accepted Answer

A)  expand tests regarding account balance collectability. 
B)  increase the allowance for uncollectible accounts for the client. 
C)  communicate to the client that credit policy must be reviewed. 
D)  increase the sample size of past due accounts. 
A)  expand tests regarding account balance collectability. 
B)  increase the allowance for uncollectible accounts for the client. 
C)  communicate to the client that credit policy must be reviewed. 
D)  increase the sample size of past due accounts.

Question 6

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. 
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 7

Tests of the presentation and disclosure-related objectives are generally done as part of the completion phase of the audit.

Accepted Answer

A) True 
 B)False

Question 8

In performing your audit you noticed that often times goods are shipped that are not matched with the corresponding sales invoice. This control deficiency could cause:

Accepted Answer

A)  understatement of revenues and overstatement of inventory. 
B)  overstatement of revenues and understatement of inventory. 
C)  understatement of revenues and inventory. 
D)  overstatement of revenues and inventory. 
A)  understatement of revenues and overstatement of inventory. 
B)  overstatement of revenues and understatement of inventory. 
C)  understatement of revenues and inventory. 
D)  overstatement of revenues and inventory.

Question 9

Accounts receivable need not be confirmed if they are immaterial to the financial statements.

Accepted Answer

A) True 
 B)False

Question 10

Blank confirmations are considered less reliable than standard positive confirmations.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable?

Accepted Answer

A)  A review of the minutes of the board of directors' meetings. 
B)  Discussions with the client. 
C)  Confirmation of receivables. 
D)  Examination of correspondence files. 
A)  A review of the minutes of the board of directors' meetings. 
B)  Discussions with the client. 
C)  Confirmation of receivables. 
D)  Examination of correspondence files.

Question 12

When a customer does not return an accounts receivable confirmation, it is acceptable, without performing alternative procedures, to assume the amount is 100% overstated when generalizing from the sample to the population.

Accepted Answer

A) True 
 B)False

Question 13

When performing tests of controls and tests of transactions for sales, the auditor generally defines the population as:

Accepted Answer

A)  all accounts receivable transactions for the year. 
B)  all sales invoices for the year. 
C)  all cash receipts transactions for the year. 
D)  all sales invoices less sales return credit memos. 
A)  all accounts receivable transactions for the year. 
B)  all sales invoices for the year. 
C)  all cash receipts transactions for the year. 
D)  all sales invoices less sales return credit memos.

Question 14

Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a:

Accepted Answer

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

Question 15

Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor would normally:

Accepted Answer

A)  reduce the extent of tests of details of balances. 
B)  reduce the extent of tests of controls. 
C)  reduce the tests of transactions. 
D)  reduce all of the other tests. 
A)  reduce the extent of tests of details of balances. 
B)  reduce the extent of tests of controls. 
C)  reduce the tests of transactions. 
D)  reduce all of the other tests.

Question 16

The accounts receivable balance-related audit objective net realizable value is not affected by assessed control risk for sales or cash receipts.

Accepted Answer

A) True 
 B)False

Question 17

Most tests of accounts receivable are based on what schedule, file, or listing?

Accepted Answer

A)  Sales master file. 
B)  Aged accounts receivable trial balance. 
C)  Accounts receivable master file. 
D)  Accounts receivable general ledger account. 
A)  Sales master file. 
B)  Aged accounts receivable trial balance. 
C)  Accounts receivable master file. 
D)  Accounts receivable general ledger account.

Question 18

Audit procedures designed to uncover credit sales made after the client's fiscal year end that relate to the current year being audited provide evidence for which of the following audit objective?

Accepted Answer

A)  realizable value 
B)  accuracy 
C)  cutoff 
D)  existence 
A)  realizable value 
B)  accuracy 
C)  cutoff 
D)  existence

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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. 
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.

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

An auditor would be least likely to use confirmations in connection with the examination of:

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:

Which of the following types of receivables would not deserve the special attention of the auditor?

Confirmation of accounts receivable provide evidence related to the existence, accuracy and cutoff objectives.

You are auditing Rodgers and Company and have noticed that accounts receivables have increased from the previous year because of financial problems with its customers. Your likely first response would be to:

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

Tests of the presentation and disclosure-related objectives are generally done as part of the completion phase of the audit.

In performing your audit you noticed that often times goods are shipped that are not matched with the corresponding sales invoice. This control deficiency could cause:

Accounts receivable need not be confirmed if they are immaterial to the financial statements.

Blank confirmations are considered less reliable than standard positive confirmations.

Which of the following audit procedures would not likely detect a client's decision to pledge or factor accounts receivable?

When a customer does not return an accounts receivable confirmation, it is acceptable, without performing alternative procedures, to assume the amount is 100% overstated when generalizing from the sample to the population.

When performing tests of controls and tests of transactions for sales, the auditor generally defines the population as:

Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a:

Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor would normally:

The accounts receivable balance-related audit objective net realizable value is not affected by assessed control risk for sales or cash receipts.

Most tests of accounts receivable are based on what schedule, file, or listing?

Audit procedures designed to uncover credit sales made after the client's fiscal year end that relate to the current year being audited provide evidence for which of the following audit objective?

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

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

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

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