GLEIM 11- Evidence

The following was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, Year 1. Assume all checks are dated and issued on December 30, Year 1.Disbursement DateReceipt DateCheckBank AccountsPerPerPerPerNo.FromToBooksBankBooksBank101NationalFederalDec. 30Jan. 4Dec. 30Jan. 3202CountyStateJan. 3Jan. 2Dec. 30Dec. 31303FederalAmericanDec. 31Jan. 3Jan. 2Jan. 2404StateRepublicJan. 2Jan. 2Dec. 31Jan. 2 Which of the following checks illustrate deposits or transfers in transit at December 31, Year 1? #202 and #404. #303 and #404. #101 and #303. #101 and #202.

#101 and #303.

Fact Pattern:The following was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, Year 1. Assume all checks are dated and issued on December 30, Year 1.Disbursement DateReceipt DateCheckBank AccountsPerPerPerPerNo.FromToBooksBankBooksBank101NationalFederalDec. 30Jan. 4Dec. 30Jan. 3202CountyStateJan. 3Jan. 2Dec. 30Dec. 31303FederalAmericanDec. 31Jan. 3Jan. 2Jan. 2404StateRepublicJan. 2Jan. 2Dec. 31Jan. 2 Which of the following checks might indicate kiting? #202 and #303. #101 and #404. #202 and #404. #101 and #303.

#202 and #404.

Fact Pattern:Listed below are four of a client's interbank cash transfers, indicated by the numbers 1, 2, 3, and 4, for late December and early in the following January. Your answer choice for each question should be selected from this list. Bank Account OneBank Account Two Disbursing DateReceiving Date (Month/Day)(Month/Day) PerPerPerPer BankBooksBankBooks1.12/3112/3012/3112/302.1/212/3012/3112/313.1/312/311/21/24.1/312/311/212/31 Which of the cash transfers would not appear as an outstanding check on the December 31 bank reconciliation? 3 2 1 4

1

Which of the following cash transfers results in a misstatement of cash at December 31, Year 1? Bank Transfer Schedule Disbursement Receipt Recordedin Books Paid byBank Recordedin Books Receivedby Bank Bank Transfer Schedule Disbursement Recordedin Books 12/31/Yr 1 Receipt Paid byBank 1/5/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 1/4/Yr 2 Bank Transfer Schedule Disbursement Recordedin Books 1/4/Yr 2 Receipt Paid byBank 1/5/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 1/4/Yr 2 Bank Transfer Schedule Disbursement Recordedin Books 1/4/Yr 2 Receipt Paid byBank 1/11/Yr 2 Recordedin Books 1/4/Yr 2 Receivedby Bank 1/4/Yr 2 Bank Transfer Schedule Disbursement Recordedin Books 12/31/Yr 1 Receipt Paid byBank 1/4/Yr 2 Recordedin Books 12/31/Yr 1 Receivedby Bank 12/31/Yr 1

1/4/Yr 2 1/5/Yr 2 12/31/Yr 1 1/4/Yr 2

A CPA is engaged in the annual audit of a calendar year client. The client took a complete physical inventory under the CPA's observation on December 15 and adjusted its inventory account and detailed perpetual inventory records to agree with the physical inventory. The client considers a sale to be made in the period that goods are shipped. Listed below are four items taken from the CPA's sales cutoff test worksheet. Which item does not require an adjusting entry on the client's books? Shipped Recordedas Sale Credited toInventory Shipped 1/2 Recorded as Sale 12/31 Credited to Inventory 12/31 Shipped 12/10 Recorded as Sale 12/19 Credited to Inventory 12/12 Shipped 12/14 Recorded as Sale 12/16 Credited to Inventory 12/16 Shipped 12/31 Recorded as Sale 1/2 Credited to Inventory 12/31

12/10 12/19 12/12

Fact Pattern:Listed below are four of a client's interbank cash transfers, indicated by the numbers 1, 2, 3, and 4, for late December and early in the following January. Your answer choice for each question should be selected from this list. Bank Account OneBank Account Two Disbursing DateReceiving Date (Month/Day)(Month/Day) PerPerPerPer BankBooksBankBooks1.12/3112/3012/3112/302.1/212/3012/3112/313.1/312/311/21/24.1/312/311/212/31 Which of the cash transfers would appear as a deposit in transit on the December 31 bank reconciliation? 4 2 1 3

4

Which of the following sources of corroborating information would most likely increase the assurance that an auditor of a nonissuer obtains from management's representations? Reports of performance measurement routinely prepared for management's review. Oral evidence gained from the auditor's discussion with employees. A confirmation received from the entity's bank. Minutes of meetings of the entity's strategic planning committee.

A confirmation received from the entity's bank.

If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the Accounting records with the source documents. Source documents with the accounting records. Cash receipts journal with the sales journal. Sales journal with the cash receipts journal.

Accounting records with the source documents.

11.1.16An inappropriate audit procedure relative to accounts receivable is to determine that the Client has rights in the accounts receivable. Accounts exist and are properly valued. Accounts represent the complete transaction process. Accounts are collected by the balance sheet date.

Accounts are collected by the balance sheet date.

For the fiscal year ending December 31 of the previous year and for the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and an allowance for uncollectible accounts receivable of $30,000 and $50,000, respectively. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn? Accounts receivable turnovers are 14.3 and 8.0, and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.42 and 0.20, respectively. Examine allowance for possible overstatement of the allowance. Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.42 and 0.20, respectively. Examine allowance for possible understatement of the allowance. Accounts receivable turnovers are 10.0 and 6.6, and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.16, respectively. Examine allowance for possible overstatement of the allowance. Accounts receivable turnovers are 10.0 and 6.7, and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.17, respectively. Examine allowance for possible understatement of the allowance.

Accounts receivable turnovers are 10.0 and 6.7, and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.17, respectively. Examine allowance for possible understatement of the allowance.

A cutoff test of sales complements the verification of Accounts receivable. Cash. Sales returns. Sales allowances.

Accounts receivable.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning relevant assertions about Existence. Classification. Accuracy, valuation, and allocation. Rights and obligations.

Accuracy, valuation, and allocation.

For which of the following assertions related to accounts receivable would an auditor's initial assessment of risk of material misstatement of a nonissuer be increased if the auditor discovers that client management does not regularly review the collectibility of accounts receivable balances? Accuracy, valuation, and allocation. Completeness. Existence. Rights and obligations.

Accuracy, valuation, and allocation.

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of Accuracy, valuation, and allocation. Existence. Rights and obligations. Completeness.

Accuracy, valuation, and allocation.

Which of the following controls would best alleviate concerns relating to the occurrence assertion of cash? A bank reconciliation is performed each month to compare cash amounts recorded by the company with those recorded by the bank. All restricted cash is kept in a separate bank account from unrestricted cash. All checks written to the company are scanned and stored electronically. Cash receipts are recorded as they are received by the company and, at the end of the day, an employee totals all cash receipts to compare to the cumulative number.

All checks written to the company are scanned and stored electronically.

If the business environment is experiencing a recession, the auditor most likely would focus increased attention on which of the following accounts? Common stock. Allowance for doubtful accounts. Purchase returns and allowances. Noncontrolling interest of a subsidiary purchased during the year.

Allowance for doubtful accounts.

An auditor is reviewing a sales cutoff as of March 31. All sales are shipped FOB destination, and the company records sales 3 days after shipment. The auditor notes the following items:(Amounts in Thousands)DateShippedMonthRecordedSellingPriceCostMarch 28March$192$200March 29March4440March 30April7781April 2March208220April 5April9284If the client records the required adjustments, the net effect on income in thousands of dollars for the period ended March 31 is An increase of $8. A decrease of $8. An increase of $12. A decrease of $12.

An increase of $8.

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account, as of October 31. By this procedure, the auditor would be most likely to learn of which of the following? An October 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. An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period. An October invoice was improperly computed.

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

Which of the following most likely would give the most assurance concerning the valuation assertion about accounts receivable? Inquiring about receivables pledged under loan agreements. Comparing receivable turnover ratios with industry statistics for reasonableness. Vouching amounts in the subsidiary ledger to details on shipping documents. Assessing the allowance for uncollectible accounts for reasonableness.

Assessing the allowance for uncollectible accounts for reasonableness.

Substantive testing of cash addresses assertions by a nonissuer in the Balance sheet. Statement of cash flows. Statement of comprehensive income. Income statement.

Balance sheet.

Substantive testing of cash addresses assertions related to which of the financial statements? Balance sheet. Income statement. Statement of retained earnings. Profit and loss statement.

Balance sheet.

The best evidence regarding year-end bank balances is documented in the Interbank transfer schedule. Bank deposit lead schedule. Bank reconciliations. Cutoff bank statement.

Bank reconciliations.

the usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may he usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may Be unaware of all the financial relationships that the bank has with the client.. Not believe that the bank is obligated to verify confidential information to a third party. Sign and return the form without inspecting the accuracy of the client's bank reconciliation. Not have access to the client's cutoff bank statement.

Be unaware of all the financial relationships that the bank has with the client..

An auditor should test bank transfers for the last part of the audit period and first part of the subsequent period to detect whether Cash balances were overstated because of kiting. The last checks recorded before year end were actually mailed by year end. Any unusual payments to or receipts from related parties occurred. The cash receipts journal was held open for a few days after year end.

Cash balances were overstated because of kiting.

Which of the following sets of information does an auditor usually confirm on one form? Inventory on consignment and contingent liabilities. Cash in bank and collateral for loans. Accounts receivable and accrued interest receivable. Accounts payable and purchase commitments.

Cash in bank and collateral for loans.

An auditor most likely would limit substantive audit tests of sales transactions when the risks of material misstatement are assessed as low for the existence and occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting Cash receipts and accounts receivable. Cutoffs of sales and purchases. Opening and closing inventory balances. Shipping and receiving activities.

Cash receipts and accounts receivable.

A large university has relatively ineffective internal control. The university's auditor seeks assurance that all tuition revenue has been recorded. The auditor could best obtain the desired assurance by Observing tuition payment procedures on a surprise basis. Preparing a year-end bank reconciliation. Confirming a sample of tuition payments with the students. Comparing business office revenue records with registrar's office records of students enrolled.

Comparing business office revenue records with registrar's office records of students enrolled.

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of: Completeness. Rights and obligations. Accuracy, valuation, and allocation. Occurrence.

Completeness.

An auditor traces the daily remittance list to the last validated deposit ticket for the period. Which of the following assertions is being tested? Rights and obligations. Completeness. Existence. Accuracy, valuation, and allocation.

Completeness.

In an audit of cash, an auditor evaluates the evidence relevant to the classification assertion. If the client's sinking funds and compensating balances are listed as noncurrent assets, the auditor should Conclude that they are appropriately reported. Recommend to the client that compensating balances be reported as noncurrent liabilities. Inquire of management about disclosure. Recommend to the client that the sinking funds and compensating balances be reported as current liabilities.

Conclude that they are appropriately reported.

The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to Provide the data necessary to prepare a proof of cash. Corroborate information regarding deposit and loan balances. Detect kiting activities that may otherwise not be discovered. Request information about contingent liabilities and secured transactions.

Corroborate information regarding deposit and loan balances.

When auditing a client's statement of cash flows, an auditor will rely primarily upon Analysis of significant ratios of prior years as compared to the current year. Determination of the amount of cash at year-end. Cross-referencing to balances and transactions considered in connection with the audit of the other financial statements. The standard bank confirmation.

Cross-referencing to balances and transactions considered in connection with the audit of the other financial statements.

Which of the following comparisons would be most useful to an auditor in evaluating the results of an entity's operations? Current-year warranty expense to current-year contingent liabilities. Prior-year accounts payable to current-year accounts payable. Current-year revenue to budgeted current-year revenue. Prior-year payroll expense to budgeted current-year payroll expense.

Current-year revenue to budgeted current-year revenue.

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of Existence. Cutoff. Rights and obligations. Classification.

Cutoff

At 12:01 a.m. on the first day of the new year, the cash receipts journal for the year just ended is electronically locked down. The new year's cash receipts journal can only be opened by a manager, and the manager notes the time and amount of the first receipt of the new year. This control would best alleviate concerns regarding which assertion? Cutoff. Classification. Existence. Accuracy, valuation, and allocation.

Cutoff.

An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the: Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded. Individual bank deposit slips with the details of the monthly bank statements. Dates checks are deposited per bank statements with the dates remittance credits are recorded. Daily cash summaries with the sums of the cash receipts journal entries.

Dates checks are deposited per bank statements with the dates remittance credits are recorded.

Fact Pattern:Miles CompanyBank Transfer ScheduleDecember 31 DateDate DisbursedDepositedCheck AccountsPerPerNumber From To AmountBooksBankBooksBank20201st Natl.Suburban$32,00012/311/5 þ12/311/3Ø20211st Natl.Capital21,00012/311/4 þ12/311/3Ø32172nd StateSuburban6,7001/31/51/31/60659MidtownSuburban5,50012/301/5 þ12/301/3Ø The tick mark Ø most likely indicates that the amount was traced to the January cash receipts journal. December cash receipts journal. Year-end bank confirmations. Deposits in transit of the applicable bank reconciliation.

Deposits in transit of the applicable bank reconciliation.

Which of the following audit procedures best tests the classification of cash? Determine the last check written for the period and trace the effect to the accounting records. Review documentation to verify when restricted cash was received. Verify that all checks the client has received are in the client's name. Determine that restricted cash is accounted for as a noncurrent asset.

Determine that restricted cash is accounted for as a noncurrent asset.

Customers having substantial year-end past due balances fail to reply after second request forms have been mailed directly to them. Which of the following is the most appropriate alternative audit procedure? Review collections during the year being audited. Increase the balance in the accounts receivable allowance (contra) account. Intensify tests of the client's controls with respect to receivables. Examine shipping documents.

Examine shipping documents.

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by Examining the composition of deposits in both bank A and B subsequent to year end. Examining paid checks returned with the bank statement of the next accounting period after year end. Comparing the detail of cash receipts as shown by the cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year end. Preparing from the cash disbursements book a summary of bank transfers for one week prior to and subsequent to year end.

Examining paid checks returned with the bank statement of the next accounting period after year end.

Most substantive audit procedures performed on cash are directed toward which assertion? Completeness. Accuracy. Existence. Accuracy, valuation, and allocation.

Existence.

Once a CPA has determined that accounts receivable have increased because of slow collections in a tight money environment, the CPA is likely to Review the credit and collection policy. Expand tests of collectibility. Increase the balance in the allowance for credit losses account. Review the going concern ramifications.

Expand tests of collectibility.

In confirming a client's accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year's audit, the auditor most likely would choose Individual overdue balances. Customers with credit balances. Small account balances. Individual invoices.

Individual invoices.

Which of the following might be detected by an auditor's review of the client's sales cutoff? Inflated sales for the year. Unrecorded sales discounts. Lapping of year-end accounts receivable. Excessive goods returned for credit.

Inflated sales for the year.

Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions? Verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed. Inquire about the entity's credit granting policies and the consistent application of credit checks. Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list. Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.

Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.

Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? Inspect the shipping records documenting the merchandise sold to the customers. Review the cash receipts journal for the month prior to year end. Increase the assessed level of detection risk for the existence assertion. Intensify the study of internal control concerning the revenue cycle.

Inspect the shipping records documenting the merchandise sold to the customers.

All of the following are examples of substantive tests to verify the valuation of net accounts receivable except the Inspection of accounts for current versus noncurrent status in the statement of financial position. Inspection of the aging schedule and credit records of past due accounts. Recomputation of the allowance for credit losses. Comparison of the allowance for credit losses with past records.

Inspection of accounts for current versus noncurrent status in the statement of financial position.

The negative request form of accounts receivable confirmation may be used when the Risk ofMaterialMisstatement is Number ofSmallBalances is Considerationby theRecipient is Risk of Material Misstatement is High Number of Small Balances is Many Consideration by the Recipient is Likely Risk of Material Misstatement is Low Number of Small Balances is Few Consideration by the Recipient is Unlikely Risk of Material Misstatement is Low Number of Small Balances is Many Consideration by the Recipient is Likely Risk of Material Misstatement is High Number of Small Balances is Few Consideration by the Recipient is Likely

Low Many Likely

An auditor is required to confirm accounts receivable if the accounts receivable balances are Smaller than expected. Older than the prior year. Subject to valuation estimates. Material to the financial statements.

Material to the financial statements.

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 Billing (sales) register to the accounts receivable ledger. Billing (sales) register to the meter department records. Meter department records to the billing (sales) register. Accounts receivable ledger to the billing (sales) register.

Meter department records to the billing (sales) register.

An auditor who has confirmed accounts receivable may discover that the sales journal was held open past year end if Positive confirmation requests sent to customers are not returned. Most of the returned negative confirmation requests indicate that the customer owes a larger balance than the amount being confirmed. Most of the returned positive confirmation requests indicate that the customer owes a smaller balance than the amount being confirmed. Negative confirmation requests sent to customers are not returned.

Most of the returned positive confirmation requests indicate that the customer owes a smaller balance than the amount being confirmed.

The standard AICPA form to financial institutions requesting information on direct liabilities on loans asks for the following information The PrincipalAmount Paid Description ofCollateral Date through whichInterest is Paid The Principal Amount Paid No Description of Collateral Yes Date through which Interest is Paid Yes The Principal Amount Paid Yes Description of Collateral No Date through which Interest is Paid No The Principal Amount Paid Yes Description of Collateral Yes Date through which Interest is Paid Yes The Principal Amount Paid No Description of Collateral No Date through which Interest is Paid Yes

No Yes Yes

Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan receivable? Reviewing the customer's purchase records to test the historical value of the collateral. Performing a site visit to physically inspect the collateral. Sending a positive confirmation letter to the customer to confirm the loan balance. Obtaining a current value appraisal of the collateral.

Obtaining a current value appraisal of the collateral.

Which of the following auditing procedures would provide the best audit evidence in testing the existence of the accounts receivable balance? Testing shipping cutoff procedures. Obtaining confirmation of receivables directly from customers. Obtaining a management representation letter regarding accounts receivable. Tracing sales register selections into the accounts receivable listing.

Obtaining a management representation letter regarding accounts receivable.

An auditor selects a sample of recorded cash receipts and vouches them to accounts receivable and customer orders. This procedure is relevant to which assertion? Completeness. Cutoff. Existence. Occurrence.

Occurrence.

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 of which of the following? The credit manager has misappropriated remittances from customers whose accounts have been written off. One of the sales clerks has not been preparing charge slips for credit sales to family and friends. One of the computer control clerks has been removing all sales invoices applicable to his account from the data file. One of the cashiers has been covering a personal embezzlement by lapping.

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

An auditor is testing the valuation and allocation assertion about cash. For this purpose, the auditor should Compare general ledger balances with the financial statement balances. Determine whether the ending balance reflects all transactions. Ordinarily assign a lower inherent risk to U.S. currency than foreign currency. Count all cash and negotiable securities.

Ordinarily assign a lower inherent risk to U.S. currency than foreign currency.

Fact Pattern:Miles CompanyBank Transfer ScheduleDecember 31 DateDate DisbursedDepositedCheck AccountsPerPerNumber From To AmountBooksBankBooksBank20201st Natl.Suburban$32,00012/311/5 þ12/311/3Ø20211st Natl.Capital21,00012/311/4 þ12/311/3Ø32172nd StateSuburban6,7001/31/51/31/60659MidtownSuburban5,50012/301/5 þ12/301/3Ø The tick mark þ likely indicates that the amount was traced to the Year-end bank confirmations. January cash disbursements journal. Outstanding check list of the applicable bank reconciliation. December cash disbursements journal.

Outstanding check list of the applicable bank reconciliation.

Which of the following procedures would an auditor most likely perform to identify unusual sales transactions? Examining duplicate sales invoices for credit approval by the credit manager. Performing a trend analysis of quarterly sales. Tracing credits in the accounts receivable ledger to source documentation. Tracing cash receipt entries to the bank statement deposit for amount and date.

Performing a trend analysis of quarterly sales.

A treasury department overstated its company's cash position by neglecting to account for a $200,000 wire transfer. Which of the following internal controls could have detected the error? Requiring that all outgoing wire transfers be approved by management. Performing monthly reconciliations of all bank accounts. Requiring internal auditors to perform analytical procedures on cash balances. Including the daily bank-activity statements as backup to the monthly entries in the cash-receipts journal.

Performing monthly reconciliations of all bank accounts.

Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts? The auditor's allowable risk of assessing control risk is too low. The amount of credit loss write-offs in the prior year. The size of the intercompany receivable balance. Preliminary judgments about materiality levels.

Preliminary judgments about materiality levels.

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows? Vouch a sample of cash receipts and disbursements for the last few days of the current year. Confirm the amounts included in the statement of cash flows with the entity's financial institution. Reconcile the cutoff bank statement to the proof of cash to verify the accuracy of the year-end cash balance. Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.

Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.

After receiving responses to accounts receivable confirmations, the auditor determined that the evidence was not sufficient to form a conclusion regarding the accounts receivable balance. Which of the following actions should the auditor take next concerning the accounts receivable balance? Ask the internal auditor to evaluate the valuation of accounts receivable. Issue a qualified audit opinion on the client's financial statements. Withdraw from the engagement and issue a disclaimer of opinion. Request additional confirmations and perform alternative procedures.

Request additional confirmations and perform alternative procedures.

In the confirmation of accounts receivable, the auditor would most likely Request confirmation of a sample of the inactive accounts. Require that confirmation requests be sent within 1 month of the fiscal year end. 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.

Request confirmation of a sample of the inactive accounts.

The most effective audit procedure for determining the collectibility of an account receivable is the Review of the subsequent cash collections. Review of authorization of credit sales to the customer and the previous history of collections. Confirmation of the account. Examination of the related sales invoice(s).

Review of the subsequent cash collections.

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year end? Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year end. Send confirmation requests for all new customer balances incurred from the interim date to year end. Resend confirmation requests for any significant customer balances remaining at year end. Review cash collections subsequent to the interim date and the year end.

Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year end.

The auditing standards define external confirmation as "a direct written response to the auditor from a third party (the confirming party), either in paper form or by electronic or other medium." The assertions for which confirmation of accounts receivable balances provides primary evidence are Completeness and presentation. Classification and rights and obligations. Rights and obligations and existence. Existence and completeness.

Rights and obligations and existence.

In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate? Bonds payable. Bank charges. Equipment. Sales.

Sales

Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that Sales billed to customers were actually shipped. Entries in the accounts receivable subsidiary ledger were for sales actually shipped. Shipments to customers were properly billed. No duplicate shipments to customers were made.

Sales billed to customers were actually shipped.

If the objective of an auditor's test of details is to detect the overstatement of sales, the auditor should trace transactions from the Sales journal to the shipping documents. Shipping documents to the cash receipts journal. Customer's purchase orders to the sales journal. Cash receipts journal to the customer's purchase orders.

Sales journal to the shipping documents.

An entity's financial statements were misstated over a period of years because large amounts of revenue were recorded in journal entries that involved debits and credits to an illogical combination of accounts. The auditor could most likely have been alerted to this fraud by Tracing a sample of journal entries to the general ledger. Scanning the general journal for unusual entries. Examining documentary evidence of sales returns and allowances recorded after year end. Performing a revenue cutoff test at year end.

Scanning the general journal for unusual entries.

To establish illegal "slush funds," corporations may divert cash received in normal business operations. An auditor would encounter the greatest difficulty in detecting the diversion of proceeds from Purchase returns. Scrap sales. C.O.D. sales. Dividends.

Scrap sales.

Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed? Physical inspection of a sample of inventory. Search for unrecorded cash receipts. Obtaining a client representation letter. Confirmation of accounts receivable.

Search for unrecorded cash receipts.

An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation. Provide the data necessary to prepare a proof of cash. Request that a cutoff bank statement and related checks be sent to the auditor. Detect kiting activities that may otherwise not be discovered.

Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation.

Which of the following procedures would be appropriate to test the existence assertion during an audit of accounts receivable? Determine that all shipments before year end are recorded as sales. Trace transactions from the subsidiary ledger to the general ledger. Trace a sample of invoices to recording in the general ledger. Send confirmations to customers.

Send confirmations to customers.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is ineffective. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely Send positive confirmation requests. Examine evidence of subsequent cash receipts. Send negative confirmation requests. Inspect the internal records such as copies of the tax invoices that were mailed to the residents.

Send positive confirmation requests.

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would Inspect the allowance account to verify whether the accounts were subsequently written off. Send the customer a second confirmation request. Increase the assessed risks of material misstatement for the revenue cycle. Increase the assessed risks of material misstatement for the accuracy, valuation, and allocation assertion and the completeness assertion.

Send the customer a second confirmation request.

During a recent audit of the revenue cycle, a CPA found the client had $1 million in accounts receivable recorded for fictitious customers. Which of the following tests most likely facilitated identification of the fraud? Reviewing the segregation of duties for staff who had responsibility for sales, shipping, and invoicing. Sending positive confirmations to all of the client's customers with balances on December 31. Examining the reconciliation between the subsidiary ledger and the general ledger control account. Reviewing the support for open sales orders not yet shipped at December 31.

Sending positive confirmations to all of the client's customers with balances on December 31.

Tracing bills of lading to sales invoices provides evidence that: Shipments to customers were recorded as sales. Invoiced sales were shipped. Shipments to customers were invoiced. Recorded sales were shipped.

Shipments to customers were invoiced.

Tracing shipping documents to prenumbered sales invoices provides evidence that No duplicate shipments or billings occurred. All goods ordered by customers were shipped. Shipments to customers were properly invoiced. All prenumbered sales invoices were accounted for.

Shipments to customers were properly invoiced.

An auditor is determining whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the Customer order file. Shipping document file. Sales invoice file. Cash receipts file.

Shipping document file.

If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from the: Sales journal to the cash receipts journal. Cash receipts journal to the sales journal. Shipping documents to the sales invoices. Sales invoices to the shipping documents.

Shipping documents to the sales invoices.

When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent Deposits in transit. Theft. Irregular endorsement. Substitution.

Substitution

From which of the following populations most likely would a sample be drawn by an auditor who is confirming accounts receivable as of June 30? Customer sales agreements signed subsequent to June 30. Bills of lading for goods shipping prior to June 30. The accounts receivable detail listing as of June 30. Customer payments received subsequent to June 30.

The accounts receivable detail listing as of June 30.

An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past 5 years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue? The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales. The auditor should review period-end compensation to determine if bonuses were paid to meet earnings goals. The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management.

The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.

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? The client opened a second retail outlet during the current year, and its credit sales approximately equaled the older outlet. The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings. Internal control activities over the recording of cash receipts have been improved since the end of the prior year. A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year.

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

An auditor's analytical procedures performed during the overall review stage indicated that the client's accounts receivable had 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 most likely would satisfy the auditor? Twice as many accounts receivable were written off in the prior year as in the current year. The client opened a second retail outlet in the current year, and its credit sales approximately equaled those of the older, established outlet. A greater percentage of accounts receivable were currently listed in the "more than 90 days overdue" category than in the prior year. The client liberalized its credit standards in the current year and sold much more merchandise to customers with poor credit ratings.

The client opened a second retail outlet in the current year, and its credit sales approximately equaled those of the older, established outlet.

Confirmation of accounts receivable is a generally accepted auditing procedure. The presumption is that an auditor will request confirmation of accounts receivable. Confirmation is necessary when: The accounts receivable are immaterial. Based on experience with similar engagements, responses are expected to be unreliable. The combined assessed level of inherent and control risk is high. Based on prior years' audit experience, response rates will be inadequate.

The combined assessed level of inherent and control risk is high.

The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that The accounts receivable aging has deteriorated. The company has eliminated its discount policy. Customer sales have substantially decreased. The company is more aggressively collecting customer accounts.

The company is more aggressively collecting customer accounts.

An independent auditor asked a client's internal auditor to assist in preparing a standard financial institution confirmation request for a payroll account that had been closed during the year under audit. After the internal auditor prepared the form, the controller signed it and mailed it to the bank. What was the major flaw in this procedure? The form was mailed by the controller. The account was closed, so the balance was zero. The form was prepared by the internal auditor. The internal auditor did not sign the form.

The form was mailed by the controller.

Many of the Granada Corporation's convertible bondholders have converted their bonds into stock during the year under audit. The independent auditor should review the Granada Corporation's statement of cash flows and related disclosures to ascertain that they show Nothing relating to the conversion because it does not affect cash. Only the cash provided by the issuance of stock. Only the cash used to reduce the convertible debt. The issuance of the stock and reduction in convertible debt.

The issuance of the stock and reduction in convertible debt.

The standard AICPA form directed to financial institutions requests all of the following except Description of collateral for a direct liability. The principal amount paid on a direct liability. Due date of a direct liability. The interest rate of a direct liability.

The principal amount paid on a direct liability.

When scheduling the audit work to be performed on an engagement, the auditor should consider confirming accounts receivable balances at an interim date if Negative confirmations are to be used. The risk of material misstatement relative to financial statement assertions about receivables is acceptably low. Subsequent collections are to be reviewed. There is a simultaneous audit of cash and accounts receivable.

The risk of material misstatement relative to financial statement assertions about receivables is acceptably low.

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. An unusually large receivable was written off near the end of the year. Obsolete inventory has not yet been reduced to fair market value. The aging of accounts receivable was improperly performed in both years.

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

Auditors are often concerned with the possibility of overstatement of sales and receivables. However, management may also have reasons for understating these balances. Which of the following would explain understatement of sales and receivables? To window-dress the financial statements. To meet budgets and forecasts. To avoid paying taxes. All of the answers are correct.

To avoid paying taxes.

Which of the following is not a principal objective of the auditor in the audit of revenues? To identify and interpret significant trends and variations in the amounts of various categories of revenue. To verify that earned revenue has been recorded and recorded revenue has been earned. To obtain an understanding of internal control and assess the risks of material misstatement, with particular emphasis on the use of accrual accounting to record revenue. To verify cash deposited during the year.

To verify cash deposited during the year.

A company issued bonds for cash during the year under audit. To ascertain that this transaction was properly recorded, the auditor's best course of action is to Request a statement from the bond trustee as to the amount of the bonds issued and outstanding. Verify that the net cash received is credited to an account entitled "bonds payable." Trace the cash received from the issuance to the accounting records. Confirm the results of the issuance with the underwriter or investment banker.

Trace the cash received from the issuance to the accounting records.

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The auditor would most likely Reconfirm the zero balance as of January 10, Year 2. Determine whether a customary trade discount was taken by the customer. Determine whether any changes in the account occurred between January 1 and January 9, Year 2. Verify that the amount was received.

Verify that the amount was received.

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted. Examine the shipping documents that provide evidence for the existence assertion. Verify the sources and contents of the faxes in telephone calls to the senders. Consider the faxes to be nonresponses and evaluate them as unadjusted differences.

Verify the sources and contents of the faxes in telephone calls to the senders.

The auditor believes that a pattern of fictitious returned goods exists. The auditor should Vouch sales returns to receiving reports. Perform an inventory count. Determine that payments for selected receivables were recorded before period end. Reconcile sales invoices with bills of lading and sales orders.

Vouch sales returns to receiving reports.