CH 11 HW

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

Accounts receivable subsidiary ledger

There is an presumption that auditors will confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low

And accounts receivable are immaterial, or the use of confirmations would be ineffective

Which of the following would provide the most assurance concerning the valuation of AR?

Assess the allowance for uncollectible accounts for reasonableness

Accuracy of statement: Auditors may ignore individually immaterial accounts when confirming accounts receivable.

Correct

Accuracy of statement: Second requests are ordinarily sent for positive form confirmation requests when the first request is not returned.

Correct

T/F A combination of positive and negative requests may be used.

Correct

T/F Confirmation of accounts receivables may be omitted in certain circumstances.

Correct

T/F If the misstatements identified by the confirmation process are in total immaterial, the auditors may still conclude that the account is materially overstated.

Correct

T/F Test of control results may result in the need to confirm fewer accounts.

Correct

Control strength of: Clerk #2 receives cash and checks and prepares the daily bank deposit.

Deficiency

Control strength of: The office manager extends credit on a case-by-case basis rather than using a formal credit search and established credit limits.

Deficiency

Which of the following is not among the criteria that ordinarily exists for revenue to be recognized

Delivery has occurred or is scheduled to occur in the near future

Accuracy of statement: Auditors should always confirm the total balances of accounts rather than individual portions (e.g., if the balance is made up of three sales, all three should be confirmed).

Incorrect

Accuracy of statement: Confirmation of accounts receivable is a generally accepted auditing standard.

Incorrect

Accuracy of statement: The best way to evaluate the results of the confirmation process is to compare the total misstatements identified to the account's tolerable misstatements amounts.

Incorrect

T/F Confirmation requests should be mailed by the client under the careful supervision of the CPAs.

Incorrect

T/F Since they represent evidence obtained from an external source, confirmation replies from customers are considered to provide more reliable information than the client's records and accepted as the proper audited balance.

Incorrect

Which of the following would most likely be detected by an auditors review of the clients sales cutoff?

Inflated sales for the year

Control strength of: Southwest is involved only in medical services and has not diversified its operations.

Neither

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?

Over recorded sales due to a lack of control over the sales entry function

Which of the following is most likely to be an example of fraudulent financial reporting relating to sales?

Recording sales when the customer is likely to return the goods.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:

Send positive confirmation requests.

To determine that all sales have been recorded, the auditors would select a sample of transactions from the:

Shipping documents file

Control strength of: Computer software cannot be modified by Southwest's employees.

Strength

Control strength of: Insurance coverage for patients is verified and communicated to the clerks by the office manager before medical services are rendered.

Strength

Control strength of: Prenumbered service slips are accounted for on a monthly basis by the outside accountant, who is independent of the revenue-generating and revenue-recording functions.

Strength

Control strength of: The bank reconciliation is prepared monthly by the outside accountant, who is independent of the revenue-generating and revenue-recording functions.

Strength

Which of the following is an example of misappropriation of assets relating to sales?

Theft of cash register sales

Loans by a company to its officers, directors, major stockholders, or affiliates require particular attention because these ___________ are not the results of arm's length bargaining by independent parties.

related party receivables

Identify the control that is most likely to prevent the concealment of a cash shortage relisting from the improper write off of a trade account receivable:

Write offs must be approved by a responsible official after review of a credit department recommendations and supportive evidence.

Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable:

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

A ___________ is a shipping document that is prepared for goods shipped by a common carrier.

bill of lading

The ___________ should account for the serially numbered shipping documents to ensure that an invoice is prepared for all shipments.

billing department

Receivables written off are often turned over to a ___________.

collection agency

The best evidence of collectibility of accounts receivable is examination of subsequent ___________ of the accounts.

collections

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?

completeness