Chapter 11 Study Guide

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 is not true about the confirmation of accounts receivable?

Confirmation requests should be signed by the auditors

Which of the following generally provides the least evidence regarding the valuation of accounts receivable?

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

Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts?

Review accounts which have been written off as uncollectible prior to year-end.

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.

It is sometimes impossible for the auditors to use normal accounts receivable confirmation procedures. In such situations the best alternative procedure the auditors might resort to would be:

Examining subsequent receipts of year-end accounts receivable.

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

A large number of accounts receivable are in dispute

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

Tracing copies of sales invoices to shipping documents will provide evidence that all

Billed sales were shipped

The auditors obtain audit evidence for accounts receivable by using positive or negative confirmation requests. Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

Client records include a large number of relatively small balances.

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

Closing the sales journal prior to year-end

The confirmation of accounts receivable is most closely associated with

Detection Risk

Which of the following is not a primary objective of the auditors in the examination of accounts receivable?

Determine the expected day of collection of each of the receivables.

Which of the following revenue related transactions is not linked to the accounts indicated?

Don't write off uncollectible receivables--sales returns, sales discounts.

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

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.

Once a CPA has determined that accounts receivable have increased due to slow collections in a "tight money" environment, the CPA would be likely to:

Expand tests of collectibility

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

Inclusion of the information in the engagement letter

When there are a large number of relatively small account balances, negative confirmation of accounts receivable is feasible if the combination of inherent risk and control risk is

Low, and the individuals receiving the confirmation requests are likely to give them adequate consideration.

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

No reply to a positive confirmation request is received.

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

Occurrence of sales transactions

Which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmations?

Physically examine items sold.

Johnson is engaged in the audit of a utility which supplies power to a residential community. All accounts receivable balances are small and internal control is effective. Customers are billed bi-monthly. In order to determine the validity of the accounts receivable balances at the balance sheet date, Johnson would most likely:

Send negative confirmation requests

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

Sending accounts receivable confirmations

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.

You were surprised to note that approximately 95% of returned positive accounts receivable confirmations 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

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.

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Of the following, which combination is it most likely that the auditors will use?

The positive form used for large balances and the negative form for the small balances.

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

An audit basically consists of having the auditor form an opinion regarding management's financial statement assertions. The auditor therefore develops general and specific program steps to apply to the accounts and transactions. In a particular case, s/he might do this by:

Tracing sales invoices to shipping documents to test the occurrence of reported sales.

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 not true about the auditors' verification of notes receivable?

Inspecting the notes is sufficient evidence of existence of the notes.