Auditing Chapter 7
A person who has access to both cash and accounts receivable records may be able to take cash receipts by Multiple Choice Overstating cash receipts. A kiting operation. A lapping operation. Correct Underfooting the bank reconciliation.
A lapping operation
The positive form of confirmation is best used when: Multiple Choice Account balances are relatively large. Account balances are small in amount, but large in number. Internal control is considered effective. Accounts are not in dispute.
Account balances are relatively large
Prenumbering invoices, shipping documents, and sales orders is a practice to achieve which of the following assertions? Multiple Choice Accuracy. Occurrence. Presentation or disclosure. Completeness. Correct
Completeness
In the revenue and collection cycle, the order of the activities in the cycle are best illustrated by: Multiple Choice Customer ordering, credit granting, delivering goods, billing customers. Correct Customer ordering, delivering goods, credit granting, billing customers. Credit granting, billing customers, delivering goods, cash receipts. Delivering goods, billing customer, credit granting, collection activities.
Customer ordering, credit granting, delivering goods, billing customers.
Which of the following is not an alternative procedure when a confirmation is not received? Multiple Choice Examine sales invoices and vouch them to underlying shipping documents. Examine client correspondence with the customer. Examine customer purchase orders. Examine payments received before the end of the period.
Examine payments received before the end of the period.
A computer generally cannot be used for scanning large files of accounts receivable for unusual credit balances.
False
If control risk is assessed very low, the substantive audit procedures on account balances must be expanded.
False
When obtaining evidence about accounts receivable, auditors must put emphasis on the completeness and the obligations assertions.
False
An internal control questionnaire for evaluating the occurrence objective of revenues would not include which of the following questions? Multiple Choice Are customers' statements mailed monthly by the accounts receivable department? Is customer credit approved before orders are shipped? Are returned goods checked against necessary reports? Are direct confirmations of receivables obtained periodically by the internal auditor?
Is customer credit approved before orders are shipped?
A comparison of checks listed on a sample of deposit slips to the detail of customer credits posted to customer accounts receivable can be an audit test for lapping.
True
A confirmation procedure scheduled on the year-end date with a large sample of customer account balances is necessary if tests of controls reveal control weaknesses.
True
A price list master file contains the product unit prices that are used for billing customers.
True
An objective for an audit is to obtain evidence related to management's financial statement assertions.
True
Auditors should not place total reliance on controls to the exclusion of other substantive testing procedures.
True
Confirmations yield evidence about existence and the gross valuation of a receivable balance.
True
Inquiries of management usually do not provide very convincing evidence about the existence and rights assertions.
True
The accountants who record cash receipts and credits to customer accounts should not handle the cash.
True
The aging information for accounts receivable is typically used in connection with assessing the allowance for doubtful accounts.
True
The use of confirmations to test accounts receivable is considered a generally accepted audit procedure.
True
