Chapter 11

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

To test the existence assertion for recorded receivables, an auditor would select a sample from the:

Accounts receivable subsidiary ledger

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

Aging of accounts receivable.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal control over the revenue cycle?

Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash

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

Examine cash receipts received after year-end

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?

Inventory.

Which of the following is least likely to be used as an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

Physically examine items sold.

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.

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?

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?

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

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

Trace the balances from accounts receivable ledger to the billing statements