Audit Exam #3

Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide evidence concerning the

Existence of the balances confirmed.

Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as outstanding on the year-end bank reconciliation?

Receive a cutoff bank statement directly from the client's bank.

Which of the following would indicate the need to use positive accounts receivable confirmation requests?

A large number of accounts receivable are in dispute.

The auditors' primary objective in selecting a sample of items from an audit population is to obtain:

A representative sample.

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

Accounts receivable subsidiary ledger.

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts?

Aging of accounts receivable.

Which of the following would provide the most assurance concerning the valuation of accounts receivable?

Assess the allowance for uncollectible accounts for reasonableness.

On receiving the bank cutoff statement, the auditor should trace:

Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.

Which of the following is not true about the confirmation of accounts receivable?

Confirmation requests should be signed by the auditors.

Which of the following generally provides the least evidence regarding the valuation of the allowance for doubtful accounts?

Confirming current (0-30 day) year-end accounts receivable.

Which of the following is not a part of the auditors' responsibility regarding a client's count of its inventory?

Determine which counts they will make and which counts the client will make.

Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts?

Examine cash receipts received after year-end.

Which of the following best describes the reason that the auditors record their inventory test counts in the working papers?

For subsequent comparison with the completed inventory listing.

To gather evidence regarding the balance per bank in a bank reconciliation, an auditor could examine all of the following except:

General ledger.

The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are:

Included in the final inventory schedule.

In attributes sampling, what effect does a decrease in the tolerable deviation rate have on sample size?

Increase

For purposes of an audit of financial statements, electronic confirmation of cash balances:

Is acceptable when properly controlled.

You have been asked to test the effectiveness of Ingo Corporation's control of manually approving all purchases over $25,000. During the year, Ingo Corporation has made 1,000,000 purchases, of which 3,000 were over $25,000. Jian Zhang, CPA, your supervisor, asked you to use a tolerable deviation rate of 4 percent (although she expects the rate to be only approximately 0.25 percent) and a 5 percent risk of assessing control risk too low. Use the following to determine the planned assessed level of control risk and the assessed level of control risk. (Planned) Assessed Level of Control RiskTolerable Deviation RateLow2−7%Moderate6−12%Slightly below the maximum11−20%MaximumOver 20% a. What is the planned assessed level of control risk?

Low 117(1)

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:

No reply to a positive confirmation request is received.

Which of the following is least likely to be used as an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

Physically examine items sold.

Which of the following is not confirmed on the standard confirmation form used for cash balances at financial institutions?

Securities held for the client by the financial institution.

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.

Which of the following is not true relating to the auditors' observation of the client's physical inventory?

The auditors should supervise the taking of the inventory.

Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?

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

As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?

The request was mailed by the assistant treasurer.

Which of the following cash transfers is most likely to result in a misstatement of cash at December 31, 20X7?

Transfer B