CH 11 Audit Final

A CPA examines a sample of copies of Dec and Jan sales invoices for the initials of the person who verified the quantitative data. this is an example of a

test of a control

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 of as of year end will generally be confirmed

you were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought they owed a larger balance that 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

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 clients letterhead

which of the following is the best argument against the use of negative accounts receivable confirmation requests

the inference drawn from receiving no reply may not be correct

an auditor discovered that a clients 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

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 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

which of the following is not true about the confirmation of accounts receivable

confirmation requests should be signed by auditors

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 generally provides the least evidence regarding the valuation of the allowance for doubtful accounts

confirming current (0-30 day) year end accounts receivable

4. Review yearend cut-off transactions

1. Holding sales journal open at yearend 2. Auditors should compare the sales recorded for several days before and after the balance sheet date with the duplicate sales invoices and shipping documents 3. Be aware of "Bill and Hold documents" 4. Analytical tests of large increases in revenue and receivables at yearend along with increases in gross margin 5. Inappropriate changes in accounting procedures to increase recorded revenues 6. Substantial sales returns after the balance sheet date (Channel Stuffing - inducing customers to buy substantially more merchandise than they can sell)

if the initial response to a positive confirmation is not received, the auditors should

1. send a second request 2. consider sending a third request or telephoning the customer 3. for significant non respondents perform alternative auditing procedures a. examining subsequent cash receipts b. establishing validity of the customer

3 conditions which should exist for the auditors to use the negative form of request

1. the combined assessed level of inherent and control risk is low 2. a large number of small balances 3. reason to believe the person receiving the confirmation will give it consideration

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

after the CPAs have selected particular accounts receivable for confirmation

all requests for confirmation should be mailed in envelopes bearing the CPA firms return address and should include a return envelope addressed to the CPA firm

the confirmation of accounts receivable is most closely associated with

detection risk

Revenue cut-off issues

early/late recognition of revenue

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 is not typically considered to be an alternate procedure for handling non replies to accounts receivable confirmation requests

inclusion of the information in the engagement letter

Channel Stuffing

inducing customers to buy substantially more merchandise than they can sell

when scheduling the audit work to be performed on an engagement, the auditors should consider confirming accounts receivable balances at an interim date if

internal control over receivables is good

which of the following would indicate the need to use positive accounts receivable confirmation requests

large number of accounts receivable are in dispute

when there are large number of relatively small account receivables balances, negative confirmation requests may be appropriate 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

which of the following does not meet the definition of an external confirmation in the context of accounts receivable

oral responses obtained by the auditor through a telephone call

the confirmation process may be performed using

paper form and electronic form

which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests

physically examine items sold

an audit basically consists of having the auditor form an opinion regarding managements financial statement assertions. the auditor therefore develops general and specific program steps to apply to the accounts and transactions. in a particular case, she might do this by:

tracing sales invoices to shipping documents to test the occurrence of reported sales