ACCY 131 Ch. 11

To test the existence assertion foe recorded receivables, the auditors would select a sample from the: A) Sales orders file B) Customers purchase orders C) Accounts receivables subsidiary ledger D) Shipping documents (bills of lading) file

C) Accounts receivables subsidiary ledger

The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low. A) And accounts receivable are immaterial, or the use of confirmation would be ineffective. B) And accounts receivable are composed of large accounts C) And the effectiveness of confirmations os absolutely determined D) Or accounts receivable are from extremely reputable

A) And accounts receivable are immaterial, or the use of confirmation would be ineffective.

Which of the following is a proper alternative audit procedure for nonresponses to positive accounts receivable confirmation requests? A) Examination of subsequent cash receipts in payment of the receivable. B) Mailing negative confirmation requests to nonrespondents. C) Expansion of the sample by the number of nonrespondents. D) Reduction of accounts receivable by the amount of the nonresponses.

A) Examination of subsequent cash receipts in payment of the receivable.

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: A) Send positive confirmation request B) Send negative confirmation requests C) Examine evidence of subsequent cash receipts D) Inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

A) Send positive confirmation request

The best control to prevent lapping is: A) Separation of recordkeeping for receivables from custody of cash. B) Separation of authorization of sales transactions from recordkeeping for accounts receivable. C) Timely reconciliation of the bank account by an individual not involved in recordkeeping for receivables. D) Comparison of the total per the daily bank deposit ticket with the total recorded in the cash receipts journal by an individual otherwise independent of the cash receipts function.

A) Separation of recordkeeping for receivables from custody of cash.

To determine that all sales have been recorded, the auditors would select a sample of transactions from the: A) Shipping documents B) Sale Journal C) Accounts receivable subsidiary journal D) Remittence advices

A) Shipping documents

Which of the following would be least likely todiminish the validity of evidence obtained from confirmation of accounts receivable? A) The confirmation requests are sent on the client's letterhead. B) The confirmation requests are mailed to clients by the internal auditors. C) The mailing addresses on the confirmation requests are verified by the client's mailroom personnel. D) The return address on the envelopes used to send the confirmation requests is the exact office address that the CPAs work in at the client's premises.

A) The confirmation requests are sent on the client's letterhead.

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: A) Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence B) Write-offs must be approved by accounts receivable department C) Write-offs must be authorized by the shipping department D) Write-offs must be supported by an aging schedule showing that only receivables overdue by several months have been written off.

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

The most practical and effective audit procedure for detecting lapping is: A) Preparing an interbank transfer schedule. B) Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank. C) Tracing recorded cash receipts to postings in customers' ledger cards. D) Preparing a proof of cash.

B) Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit slips validated by the bank.

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoice? A) Existence or occurence B) Completeness C) Rights and Obligation D) Presentation and disclosure

B) Completeness

Which of the following is not among the criteria that ordinarily exist for revenue to be recognized? A) Collectibility is reasonably assured B) Delivery has occurred or is scheduled to occur in the near future C) Persuasive evidence of an arrangement exists D) The seller's price to the buyers fixed or determinable

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

Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts? A) Investigate confirmation exceptions for indication of amounts in dispute. B) Review amounts of accounts which have been written off as uncollectible prior to year-end. C) Investigate credit ratings for large accounts receivable. D) Discuss with the credit manager the current status of doubtful accounts.

B) Review amounts of accounts which have been written off as uncollectible prior to year-end.

Which of the following is statements is correct about "window dressing?" A) Window dressing involves intentional overstatements of receivables and sales through decreases in the percentage complete of long-term construction projects. B) An audit is not developed to provide assurance of detecting any forms of window dressing. C) A number of window dressing practices represent proper and appropriate business practices. D) Window dressing ordinarily involves the intentional overstatement of liability and equity accounts.

C) A number of window dressing practices represent proper and appropriate business practices.

Which statement is correct concerning the audit of notes receivable? A) An aged schedule of notes receivable is ordinarily used to estimate an allowance for uncollectible notes. B) Because note forms are tightly controlled by banks, physical inspection is ordinarily a particularly effective audit technique. C) Confirmation in writing from the holder of the note is ordinarily considered as an acceptable alternative to inspection of the note. D) The inspection of notes receivable on hand is ordinarily performed concurrently with the inspection of notes payable.

C) Confirmation in writing from the holder of the note is ordinarily considered as an acceptable alternative to inspection of the note.

When scheduling audit work, the auditors are most likely to confirm accounts receivable balances at an interim date if: A) Negative confirmations are being used. B) Internal control is weak. C) Internal control is strong. D) There is a simultaneous examination of cash and accounts payable.

C) Internal control is strong.

Tracing copies of shipping documents to sales invoices will provide evidence that all A) Billed sales were shipped. B) Debits to the subsidiary accounts receivable ledger are for sales shipped. C) Shipments to customers were billed. D) Accounts receivable are recorded.

C) Shipments to customers were billed.

Which of the following is one of the most conclusive forms of evidence in establishing the existence of accounts receivable? A) Close inspection of notes on hand and verification with company personnel. B) Comparisons of last year's receivables with current year amounts to test for reasonableness. C) The confirmation of accounts. D) Contacting a credit reporting agency to determine the credit worthiness of customers.

C) The confirmation of accounts.

Which of the following would provide the most assurance concerning the valuation of accounts receivable? A) Trace amounts in the accounts receivable subsidiary ledger to details on shipping documents B) Compare receivable turnover ratios to industry statistics for reasonableness C) Inquire about receivable pledged under loan agreements D) Assess the allowance for uncollectible accounts for reasonableness

D) Assess the allowance for uncollectible accounts for reasonableness

Which of the following would most likely be detected by an auditor's review of the client's sales cutoff? A) Excessive goods returned for credit B) Unrecorded sales discount C) Lapping of year end accounts receivable D) Inflated sales for the year

D) Inflated sales for the year

Which of the following is least likely to be considered an inherent risk relating to receivables and revenue? A) Restrictions placed on sales by laws and regulations B) Decline in sales due to economic declines C) Decline in sales due to product obsolescence D) Over -recorded sales due to lack of control over the sales entry function

D) Over -recorded sales due to 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? A) Inaccurate billing due to lack of controls B) Lapping of accounts receivable C) Misbilling a client due to a data input error D) Recording sales when the customer is likely to return the goods

D) Recording sales when the customer is likely to return the goods

Which of the following is the best argument against the use of negative accounts receivable confirmations? A) The cost-per-response is excessively high. B) There is no way of knowing if the intended recipients received them. C) Recipients are likely to feel that in reality the confirmation is a subtle request for payment. D) The inference drawn from receiving no reply may not be correct.

D) The inference drawn from receiving no reply may not be correct.

Which of the following is an example of misappropriation of assetss relating to sales? A) Accidentally recording cash that represents a liability as revenue B) Holding the sales journal open to record next year's sales as having occurred in the current year C) Intentionally recording cash received from a new debt agreement as revenue D) Theft of cash register sales

D) Theft of cash register sales

An analysis of the aged accounts receivables is most directly related to which substantive test objective? A) Existence and occurrence. B) Presentation and disclosure. C) Rights and obligations. D) Valuation.

D) Valuation.