Question 1

What are the major factors affecting sample size for confirming accounts receivable?

Accepted Answer

The factors include:
• tolerable misstat

Question 2

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

Accepted Answer

It is acceptable to use negative confirm

Question 3

For cash receipts, 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 4

Tests of which balance-related audit objective are normally performed first in an audit of the sales and collection?

Accepted Answer

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

Question 5

The most effective audit evidence gathered for accounts receivable is the:

Accepted Answer

A)  detail tie-in of the records. 
B)  analysis of the allowance for doubtful accounts. 
C)  confirmation of accounts receivable. 
D)  examination of sales invoices. 
A)  detail tie-in of the records. 
B)  analysis of the allowance for doubtful accounts. 
C)  confirmation of accounts receivable. 
D)  examination of sales invoices.

Question 6

Auditors often use analytical procedures in gathering audit evidence. For example, an unexplained decrease in the amount of accounts receivable may indicate:

Accepted Answer

A)  Sales were overstated. 
B)  Inventory purchases were curtailed. 
C)  Cost of Goods sold was overstated. 
D)  Accounts Receivables were sold. 
A)  Sales were overstated. 
B)  Inventory purchases were curtailed. 
C)  Cost of Goods sold was overstated. 
D)  Accounts Receivables were sold.

Question 7

The correct accounting for accounts receivable accounts with credit balances, provided they are significant, would be:

Accepted Answer

A)  written off. 
B)  moved to the debit side. 
C)  reclassified as accounts payable. 
D)  corrected by making adjusting entries. 
A)  written off. 
B)  moved to the debit side. 
C)  reclassified as accounts payable. 
D)  corrected by making adjusting entries.

Question 8

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. 
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 9

The audit procedure of tracing sales invoices to shipping documents will provide the auditor evidence that:

Accepted Answer

A)  billed sales were shipped. 
B)  shipments were recorded as receivables in the subsidiary ledger. 
C)  the accounts receivable master file and the accounts receivable subsidiary ledger reconcile. 
D)  goods shipped were billed to customers. 
A)  billed sales were shipped. 
B)  shipments were recorded as receivables in the subsidiary ledger. 
C)  the accounts receivable master file and the accounts receivable subsidiary ledger reconcile. 
D)  goods shipped were billed to customers.

Question 10

Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

Accepted Answer

A) True 
 B)False

Question 11

For which of the following accounts is cutoff least important?

Accepted Answer

A)  Sales 
B)  Sales returns and allowances 
C)  Cash collections 
D)  Inventory 
A)  Sales 
B)  Sales returns and allowances 
C)  Cash collections 
D)  Inventory

Question 12

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

Accepted Answer

For any positive confirmation not return

Question 13

The criterion used by most merchandising and manufacturing clients for determining when revenue recognition takes place is whether title to the goods has passed.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be very low, they need not confirm accounts receivable.

Accepted Answer

A) True 
 B)False

Question 16

When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and older accounts.

Accepted Answer

A) True 
 B)False

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

What are the major factors affecting sample size for confirming accounts receivable?

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

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

Tests of which balance-related audit objective are normally performed first in an audit of the sales and collection?

The most effective audit evidence gathered for accounts receivable is the:

Auditors often use analytical procedures in gathering audit evidence. For example, an unexplained decrease in the amount of accounts receivable may indicate:

The correct accounting for accounts receivable accounts with credit balances, provided they are significant, would be:

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

The audit procedure of tracing sales invoices to shipping documents will provide the auditor evidence that:

Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

For which of the following accounts is cutoff least important?

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

The criterion used by most merchandising and manufacturing clients for determining when revenue recognition takes place is whether title to the goods has passed.

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

If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be very low, they need not confirm accounts receivable.

When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and older accounts.

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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