Audit Ch 11

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? A) The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet. B) The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings. C) Internal control activities over the recording of cash receipts have been improved since the end of the prior year. D) A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year.

A) The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts? A) Year 2 accounts receivable compared to year one accounts receivable. B) Accounts receivable divided by Cost of goods sold. C) Cash Sales divided by Accounts receivable D) Aging of accounts receivable.

D) Aging of accounts receivable.

The confirmation of accounts receivable is most closely associated with A) Business risk. B) Inherent risk. C) Relative risk. D) Detection risk.

D) Detection risk.

Which of the following manipulations would understate receivables on the financial statements? A) Understatement of cash sales. B) Closing the sales journal prior to year-end. C) Underestimating the allowance for doubtful accounts. D) Closing the cash receipts journal prior to year-end.

B) Closing the sales journal prior to year-end.

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? A) Operating expenses are overstated for the 12 months ended December 31, 20X0. B) Sales returns and allowance are overstated at December 31, 20X0. C) Accounts receivable are overstated at December 31, 20X0. D) Accounts receivable are understated at December 31, 20X0.

C) Accounts receivable are overstated at December 31, 20X0.

Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests? A) Examine any subsequent cash receipts. B) Examine correspondence. C) Inclusion of the information in the engagement letter. D) Examine sales invoices.

C) Inclusion of the information in the engagement letter.