Ch. 11 Accounts Receivable, Notes Receivable, and Revenue - Multiple Choice Q's

Which of the following would provide the most assurance concerning the valuation of A/R?

Assess the allowance for noncollectable accounts for reasonableness. Is correct because receivables are valued at net realizable value, and assessing the allowance for uncollectible accounts for reasonableness will help the auditor determine the proper amount.

The auditors should confirm A/R unless the auditors' assessment of the material misstatement is low.

Receivables should be confirmed unless the combined assessment of inherent risk and controls risk is at the low level, receivables are immaterial, or the existence of circumstances in which the use of confirmations would be ineffective.

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

The goal is to determine the population to be sampled from to determine that all sales have been recorded; therefore, the sample should be taken from a population of source documents, here the shipping documents file.

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

Theft of cash register sales is an example of misappropriation of assets.

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

Comparing shipping documents to related sales invoices addresses the completeness assertion relating to sales. More specifically, it addresses whether all items that have been shipped have been recorded as sales.

Which of the following would most likely be detected by an auditor's review of the client's sales cutoff?

Detecting overstated sales is a primary reason the auditors' review of a client's sales cutoff. For example, shipments made in the first part of January may be improperly included in the December sales total.

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 relates to control risk not inherent risk. The other three replies all relate to inherent risk.

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

Recording the sales when the customer is likely to return the goods. A sale either shouldn't be recorded or a proper allowance for returns should be established when a customer is likely to return the goods. Thus, simply recording the sale is an example of fraudulent financial reporting when the customer is likely to record the goods.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances at the Balance Sheet date, Cooper would most likely:

The auditor would send positive confirmations rather than negative confirmations because the fact that the balances are delinquent may indicate that amounts are in dispute.

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

Write-offs of receivables should be approved by a responsible officer after a review of the account by the credit department.

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

is not among the criteria because of the portion of the answer that states "scheduled to occur in the near future." Ordinarily delivery must have occurred.

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

The objective is to determine the population the auditors would sample from to test the existence assertion for recorded receivables. The direction of testing should be from the accounts receivable subsidiary ledger to the available support, such as sales invoices, bills of lading, sales orders, and customers' orders.