Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to:

evaluate the allowance for doubtful accounts.

evaluate internal control over credit sales.

test the accuracy of recorded credit sales.

verify the existence of the recorded receivables.

Which of the following is the best argument against the use of negative accounts receivable confirmation?

The inference drawn from receiving no reply may not be correct.

The cost-per-response is excessively high.

There is no way of knowing if the intended recipients received them.

Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment.

All of the following are important controls over credit memos except:

proper segregation of duties to ensure that sales discounts taken were earned.

credit memos should be approved by someone other than whoever initiated it.

credit memos should be supported by a receiving document for returned goods.

proper segregation of duties between access to customer records and authorizing credit memos.

Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because:

entities are more likely to overstate than understate revenues.

entities are more likely to understate than overstate revenues.

it is difficult to determine when services have been performed.

the allowance for doubtful accounts often is understated.

Which of the following control activities may prevent the failure to bill customers for some shipments?

Each shipment should be supported by a prenumbered sales invoice that is accounted for.

Each sales order should be approved by authorized personnel.

Sales journal entries should be reconciled to daily sales summaries.

Each sales invoice should be supported by a shipping document.

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

Daily sales summaries are compared to daily postings to the accounts receivable ledger.

Each sales invoice is supported by a prenumbered shipping document.

The accounts receivable ledger is reconciled daily to the control account in the general ledger.

Each shipment on credit is supported by a prenumbered sales invoice.

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the:

meter department records to the billing (sales) register.

billing (sales) register to the meter department records.

accounts receivable ledger to the billing (sales) register.

billing (sales) register to the accounts receivable ledger.

Which of the following procedures would ordinarily be expected to best reveal improper cutoff of sales at the balance sheet date?

Compare shipping documents with sales records.

Apply gross profit rates to inventory disposed of during the period.

Trace payments received subsequent to the balance sheet date.

Send accounts receivable confirmation requests.

If the objective of a test of details is to detect the overstatement of sales, the auditor should trace transactions from the:

accounting records to the shipping documents.

cash receipts journal to the sales journal.

sales journal to the cash receipts journal.

shipping documents to the accounting records.

Which of the following misstatements is not related to the completeness assertion for revenue?

Next year's revenue is recorded this year.

Goods are shipped, but revenue is not recorded.

This year's revenue is recorded next year.

Revenue is not recognized for services that have been performed.

Which of the following is a test of controls for the transaction assertion of completeness for revenue?

Trace shipping documents to sales invoices and the sales journal.

Test a sample of sales invoices for authorized customer orders.

Review sales orders for proper credit approval.

Examine reconciliation of subsidiary ledger to general ledger control account.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn about which of the following?

One of the cashiers has been covering a personal embezzlement by lapping.

One of the sales clerks has not been preparing charge slips for credit sales to family and friends.

An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the existence or occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting:

cash receipts and accounts receivable.

opening and closing inventory balances.

cutoffs of sales and purchases.

An audit firm is auditing the financial statements of a small city. The receivable balances represent residents' delinquent real estate taxes. Internal control at the city is weak. To determine the existence of the accounts receivable balances at the balance sheet date, the audit firm would most likely:

send positive confirmation requests.

send negative confirmation requests.

examine evidence of subsequent cash receipts.

inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

Which of the following might be detected by an auditor's review of the entity's sales cutoff?

Excessive goods returned for credit.

Lapping of year-end accounts receivable.

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of May 31. By this procedure, the auditor would be most likely to learn about which of the following?

An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.

An May invoice was improperly computed.

An May check from a customer was posted in error to the account of another customer with a similar name.

An account balance is past due and should be written-off.

Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment, the CPA would be likely to:

Expand tests regarding the collectability of receivables.

Increase the balance in the allowance for bad debts account.

Review the going concern ramifications.

Require the entity to tighten its credit policy.

Which of the following is not an issue related to the valuation of accounts receivable?

A proper allowance for doubtful accounts.

The net realizable value of accounts receivable.

In the confirmation of accounts receivable, the auditor would most likely:

require that confirmation requests be sent as soon as possible after fiscal year-end.

send negative confirmations when the assessed risk of material misstatement is high.

seek to obtain positive confirmations for at least 50% of the total dollar amount of the receivables.

require confirmation of all receivables from agencies of the federal government.

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

A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.

A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.

To reduce the risks associated with accepting electronic responses to requests for confirmation of accounts receivable, an auditor most likely would:

Validate the sender of electronic information.

Examine subsequent cash receipts for the accounts in question.

Consider the electronic responses to the confirmations to be exceptions.

Mail second requests to the electronic respondents.

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because:

customers may not be inclined to report understatement errors in their accounts.

many customers merely sign and return the confirmation without verifying its details.

recipients usually respond only if they disagree with the information on the request.

auditors typically select many accounts with low recorded balances to be confirmed.

Which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process?

Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme.

Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables.

Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped.

Omission of shipping documents could go undetected, causing an understatement of inventory.

During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls could prevent a misstatement due to fraud?

The owner reviews credit memos before they are recorded.

The owner reviews errors in billings to customers & postings to the subsidiary ledger.

A controller receives the monthly bank statement directly and reconciles the checking accounts.

The controller reconciles the total of the detailed accounts receivable accounts to the amount shown in the ledger.

Which of the following procedures most likely would not be an internal control activity designed to reduce the risk of errors in the billing process?

Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

Comparing control totals for shipping documents with corresponding totals for sales invoices.

Using computer programmed controls on the pricing and mathematical accuracy of sales invoices.

Matching shipping documents with approved sales orders before invoice preparation.

Which of the following most likely would give the most assurance concerning the valuation assertion for accounts receivable?

Assessing the allowance for uncollectible accounts for reasonableness.

Tracing amounts in the subsidiary ledger to details on shipping documents.

Comparing receivable turnover ratios to industry standards.

Inquiring about receivables pledged under loan agreements.

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them. Which of the following is the most appropriate audit procedure?

Review collections during the year being examined.

Intensify the study of the entity's system of internal control with respect to receivables.

Increase the balance in the allowance for uncollectible accounts.

Which of the following strategies most likely could improve the accuracy of the confirmation of accounts receivable?

Including a monthly statement of the customer's account with the confirmation.

Restricting the selection of accounts to be confirmed to those customers with relatively large balances.

Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail.

Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner.

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

A client-prepared statement of account showing the details of the customer's account balance.

An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct.

A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent.

An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the auditor.

In which circumstance is the confirmation of receivables on October 31 most likely for a client with a December 31 year-end?

Appropriate audit tests indicate that control risk for receivables is low.

The receivables balance is material.

Accounts were confirmed as of December 31 for the preceding year's audit.

Tests of controls have revealed that the disbursements cycle is operating effectively

Auditors are most likely to gather audit evidence solely using substantive procedures:

if the implemented controls are assessed as ineffective.

if the entity has a well-designed automated system.

As the acceptable level of detection risk increases, the auditor may change the:

timing of substantive procedures from year-end to an interim date.

assessed level of control risk from a lower level to a higher level.

assurance provided by tests of controls by using a larger sample size than planned.

nature of substantive procedures from less effective to more effective procedures.

Proper segregation of functional responsibilities in an effective system of internal control calls for separation of the functions of:

authorization, recording (processing), and custody.

custody, execution, and reporting.

authorization, payment, and recording.

authorization, execution, and payment.

In evaluating internal control, the auditor is basically concerned that the system provides reasonable assurance that:

material misstatements have been prevented, or detected and corrected.

operational efficiency has been achieved in accordance with management plans.

controls have not been circumvented by collusion.

management cannot override the system.

A 6 & 10 Quiz

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Business

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University

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Practice Problem

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Hard

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Used 2+ times

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51 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Tracing copies of sales invoices to shipping documents will provide evidence that all sales were shipped and it also helps prove the management assertion of:

occurrence

completeness

existence

accuracy, valuation and allocation

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of which management assertion regarding account balances?

occurrence

completeness

existence

accuracy, valuation and allocation

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Scan the sales journal for sequential and unusual entries.

Examine shipping documents for matching sales invoices.

Compare accounts receivable ledger to daily sales summaries.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Tracing shipping documents to prenumbered sales invoices provides evidence that:

shipments to customers were properly billed.

that sales invoices were complete.

that shipping documents exist.

that shipping documents are calculated accurately.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

cutoff

completeness

existence

accuracy, valuation and allocation

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In auditing accounts receivable, the negative form of confirmation request most likely would be used when:

recipients are likely to return positive confirmation requests without verifying the accuracy of the information.

the combined assessed level of inherent and control risk relative to accounts receivable is low.

a small number of accounts receivable are involved but a relatively large number of errors are expected.

the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

The positive confirmation form must always be used to confirm all balances regardless of size.

A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.

A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables.

The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

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51 questions

Tracing copies of sales invoices to shipping documents will provide evidence that all sales were shipped and it also helps prove the management assertion of:

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of which management assertion regarding account balances?

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

In auditing accounts receivable, the negative form of confirmation request most likely would be used when:

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to:

Which of the following is the best argument against the use of negative accounts receivable confirmation?

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:

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