Chapter 16

The confirmation of customer's accounts receivable rarely provides reliable evidence about the completeness assertion because 1) customers may not be inclined to report understatement errors in their accounts 2) the recipients usually respond only if they disagree with the information ont he request 3) many customers merely sign and return the confirmation without verifying details 4) there is likely to be reliable third party evidence available

1) customers may not be inclined to report

Which of the following audit procedures will best uncover an understatement of sales and accounts receivable? 1) test a sample of sales transactions, selecting the sample from prenumbered shipping documents 2) test a sample of sales transactions, selecting the sample from sales invoices recorded in a sales journal 3) confirm accounts receivable 4) review the aged accounts receivable trial balance

1) test a sample of sales transactions, selecting the sample from prenumbered shipping documents

Which of the following will most likely provide the most assurance concerning the accuracy (he said validity/existence) balance-related objective for accounts receivable? 1) vouch amounts int he subsidiary ledger to details on shipping documents 2) compare receivable turnover ratios with industry statistics for reasonableness 3) inquire about receivables pledged under loan agreements 4) assess the allowance for uncollectible accounts for reasonableness

1) vouch amounts int he subsidiary ledger to details on shipping documents

The return of a positive confirmation of accounts receivable without an exception attests to the 1) collectibility of the receivable balance 2) accuracy of the allowance for uncollectible accounts 3) accuracy of the aging of accounts receivable 4) accuracy of the receivable balance

4) accuracy of the receivable balance

As a result of analytical procedures, the auditor determines that the gross profit percentage has declined from 30% int he preceding year to 20% int he current year. The auditor should 1) express a qualified opinion due to the inability of the client company to continue as a going concern 2) evaluate management's performance in causing this decline 3) require footnote disclosure 4) consider the possibility of a misstatement int he financial statements

4) consider the possibility of a misstatement int he financial statements

After a CPA has determined that accounts receivable have increased as a result of slow collections in a "tight money" environment, the CPA will be likely to 1) increase the balance in the allowance for bad debt account 2) review the going concern ramifications 3) review the credit and collection policy 4) expand tests of collectibility

4) expand tests of collectibility

The negative form of accounts receivable confirmation request is useful except when 1) internal control surrounding accounts receivable is considered to be effective 2) a large number of small balances are involved 3) the auditor has reason to believe that persons receiving the requests are likely to give them consideration 4) individual account balances are relatively large

4) individual account balances are relatively large

An auditor who is auditing accounts receivable would least likely perform which of the following tests? A. select cash disbursements made shortly after year end and examine the supporting documentation such as receiving reports and vendor invoices B. confirm a sample of accounts receivables with the customers that owe the balance C. Vouch cash receipts to the accounts receivables transactions D. Obtain an aged trail balance of accounts receivable and trace the total to the general ledger control account

A. select cash disbursements made shortly after year end and examine the supporting documentation such as receiving reports and vendor invoices

The auditor sends out positive accounts receivable confirmations for a client. assuming a second confirmation is sent out to a major customer who still fails to respond the auditor should: A. consider the nonresponse as a minor audit finding and use responding confirmations as a basis for test results B. Issue a qualified opinion due to the lack of sufficient audit evidence C. Send out a third confirmation request and if no response, perform alternative procedures D. Provide the client a copy of the accounts receivable confirmation and request that they obtain the information from the customer

C. Send out a third confirmation request and if no response, perform alternative procedures

An auditor's preliminary analysis of accounts receivable turnover revealed the following rates of these accounting periods: 2013 - 4.3, 2012 - 6.2, 2011 - 7.3 Which of the following is the most likely cause of the decrease in accounts receivable turnover? 1) increase in the cash discount offered 2) liberalization of credit policy 3) shortening of due date terms 4) increased cash sales

2) liberalization of credit policy

Which of the following is the most likely cause of the decrease in the accounts receivable turnover? 1) early payment incentives for customers 2) tightening of credit policy 3)implementing of more aggressive collection policies 4)allowance of a new grace period for customer payments

2) tightening of credit policy

Which of the following procedures will an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replied to second requests? 1) review the cash receipts journal for the month prior to year end 2) intensify the study of internal control concerning the revenue cycle 3) inspect the shipping records documenting the merchandise sold to the debtors 4) increase the assessed level of detection risk for the existence assertion

3) inspect the shipping records documenting the merchandise sold to the debtors