Ch 7 Audit HW

Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern?

"These goods were returned for credit on November 15."

The negative request form of accounts receivable confirmation is useful particularly when the___

- Assessed Level of Risk of Material Misstatement Relating to Receivables is high - Number of Small Balances is few -Proper Consideration by the Recipient is likely

Which of the following accounts is normally part of the revenue and collection cycle?

- Cash - Sales - Accounts receivable

When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following _____

- Examine shipping documents. - Send a second request. - Examine client correspondence files.

Which of the following is the best reason for pre-numbering in numerical sequence documents such as sales orders, shipping documents, and sales invoices?

Enables personnel to check the numerical sequence for missing documents and unrecorded transactions.

An audit team is auditing sales transactions. One step is to vouch a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. The purpose of this audit procedure is to establish that______

Entries in the accounts receivable subsidiary ledger were properly invoiced.

Audit documentation often includes a client-prepared, aged trial balance of accounts receivable as of the balance sheet date. The audit team uses this aging primarily to_____

Estimate credit losses.

In the audit of accounts receivable, the most important emphasis should be on the___

Existence assertion.

Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide the strongest evidence concerning the___

Existence of the balances confirmed.

When auditing the revenue and collection cycle, auditors normally select balances to confirm from the_____

Accounts receivable listing.

The control procedure "credit sales approved by credit department" is directed toward which transaction assertion?

Accuracy

identify the assertion about classes of transactions and events most benefited by the control for: Goods shipped to a bad credit risk customer?

Accuracy

identify the assertion about classes of transactions and events most benefited by the control for: Sales billed at the wrong price or wrong quantity?

Accuracy

identify the assertion about classes of transactions and events most benefited by the control for: Product line A sales recorded as Product line B?

Classification

identify the assertion about classes of transactions and events most benefited by the control for: Failure to post charges to customers for sales?

Completeness

identify the assertion about classes of transactions and events most benefited by the control for: Goods shipped, sales not recorded?

Completeness

identify the assertion about classes of transactions and events most benefited by the control for: January sales recorded in December?

Cut-off

An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor is most likely concerned about___

Fictitious sales.

Which of the following would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable?

Have customers send payments directly to the company's depository bank.

Which of the following might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date?

Inflating sales for the year

The financial records of the Movitz Company show that R. Dennis owes $4,100 on an account receivable. An independent audit is being carried out, and the auditors send a positive confirmation to R. Dennis. What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here?

Inherent risk was particularly high for accounts receivable.

An auditor noted that client sales increased 10 percent for the year. At the same time, Cost of Goods Sold as a percentage of sales had decreased from 45 percent to 40 percent and year-end accounts receivable had increased by 8 percent. Based on this information, the auditor interviewed the sales manager, who stated that the increase in sales without a corresponding increase in cost of goods sold was due to a price increase enacted by the company during the year. How would the auditor test the sales manager's representation?

Obtain copies of all price lists in use during the year and vouch the prices to sales invoices.

identify the assertion about classes of transactions and events most benefited by the control for: Sales recorded, goods not shipped?

Occurrence

Which of the following accounts is not normally part of the revenue and collection cycle?

Purchases Returns and Allowances.

Sales are normally recorded on the date of the_____

Sales Invoice

When a sample of customer accounts receivable is selected for vouching debits, auditors will vouch them to _____

Sales invoices with shipping documents and customer sales invoices.

To conceal defalcations involving receivables, a dishonest bookkeeper might charge which of the following accounts?

Sales returns.

A client has a separate sales group for its largest "preferred" customers, a select group of customers that normally make purchases in excess of $250,000 and often have accounts receivable balances in excess of $1 million. Which of the following audit procedures would the auditor most likely perform?

Send out positive confirmations on a large sample of these customers.

When accounts receivable are confirmed at an interim date, auditors need not be concerned with____

Sending negative confirmations to all customers as of the year-end date.

Which of the following internal control activities most likely would deter lapping of collections from customers?

Separation of duties between receiving cash and posting the accounts receivable ledger.

When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that____

Shipments to customers were invoiced.

Revenues are normally considered to have been earned when___

The company has substantially accomplished what it must to be entitled to the benefits.

Write-offs of doubtful accounts should be approved by____

The treasurer.

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

Understating the sales journal.

Auditors sometimes use comparisons of ratios as audit evidence. An unexplained decrease in the ratio of gross profit to sales may suggest which of the following possibilities?

Unrecorded sales.

Which of the following internal control activities will most likely prevent the concealment of a cash shortage by improperly writing off a trade account receivable?

Write-offs must be approved by a responsible officer after review of credit department recommendations and supporting evidence.