Audit Chapter 11 Revised

Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?

A) Examine cash receipts received after year-end.

When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors' confirmation of receivables?

A) The account balances as of year-end will generally be confirmed.

Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?

A) The confirmation requests are sent on the client's letterhead.

Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

Confirming accounts receivable.

Which of the following would indicate the need to use positive accounts receivable confirmation requests?

D) A large number of accounts receivable are in dispute.

The audit working papers often include a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. This aging is best used by the auditors to:

Estimate credit losses.

"While that's what we owe, we didn't owe it on Dec. 31 since we didn't receive the goods until Jan 2 of year 2

Examine shipping docs and/or subsequent cash receipts

You received no reply to a positive confirmation request to Blake Co. Subsequently you recalled Blake Co. has a policy of not responding to confirmation -- in writing or orally

Examine shipping docs and/or subsequent cash receipts

An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that:

There was an improper cutoff of sales at the end of the year.

To obtain the best evidence regarding the completeness of recorded accounts receivable, the auditors:

Trace a sample of the bills of lading to sales invoices.

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales?

Accounts receivable are overstated at December 31, 20X0.

After the CPAs have selected particular accounts receivable for confirmation:

All requests for confirmation should be mailed in envelopes bearing the CPA firm's return address and should include a return envelope addressed to the CPA firm.

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?

B) Aging of accounts receivable.

Which of the following manipulations would understate receivables on the financial statements?

B) Closing the sales journal prior to year-end.

Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

B) Inclusion of the information in the engagement letter.

Which of the following generally provides the least evidence regarding the valuation of the allowance for doubtful accounts?

C) Confirming current (0-30 day) year-end accounts receivable.

Your client performed the physical count of inventory as of November 30, one month prior to year-end. Subsequently, your client closed the sales journal on 12/29/XX, two days before year-end, and reported those two days' credit sales in January of the next year. Assuming the client uses a perpetual inventory system, which of the following is most likely to be overstated relating to the year XX financial statements? A) Sales. B) Cash. C) Inventory. D) Accounts receivable.

C) Inventory.

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?

C) The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.

The confirmation of accounts receivable is most closely associated with:

Detection risk.

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

No reply to a positive confirmation request is received.

You received no reply to a negative confirmation request

Not an exception no further audit work is necessary

"We are very satisfied with Jelco and plan to purchase from them in the future"

Not an exception, no further audit work is necessary

Tracing recorded sales transactions to the bills of lading provides evidence about the:

Occurrence of sales transactions.

For effective internal control, the billing function should not be performed by the:

Sales department.

A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this end?

Sales.

You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact that:

The cash receipts journal was held open after year-end.

"We also owe for 2 more invoices for purchases we made around year-end; I'm not sure of the exact date"

proper action: Verify whether the additional invoice noted on the confirmation reply pertain to the year under audit or the subsequent year