Chapter 11 Homework

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

Accounts receivable subsidiary ledger.

The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low:

And accounts receivable are immaterial, or the use of confirmations would be ineffective.

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

Assess the allowance for uncollectible accounts for reasonableness.

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

Theft of cash register sales.

1.) Requested responses directly from customers as to amounts due. 2.) Compared total bad debts this year with the totals for the previous two years. 3.) Questioned management about likely total uncollectible accounts. 4.) Watched the accounting clerk record the daily deposit of cash receipts. 5.) Examined invoice to obtain evidence in support of the ending recorded balance of a customer. 6.) Compared a sample of sales invoices to credit files to determine whether the customers were on the approved customer list. 7.) Examined a sample of sales invoices to see if they were initialized by the credit manager indicating credit approval.

1.) Confirmation, Substantive Procedures 2.) Analytical Procedure, Substantive Procedures 3.) Inquiry, Substantive Procedures 4.) Observation, Test of Controls 5.) Inspection of records or documents, Substantive Procedures 6.) Reperformance, Test of Controls 7.) Inspection of records or documents, Test of Controls

Under SEC rules, which of the following is not among the criteria that ordinarily exist for revenue to be recognized?

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

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

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

Recording sales when the customer is likely to return the goods.

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.

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

Shipping documents file

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:

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

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

Completeness.

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

Inflated sales for the year.

1.) "We mailed the check for this on December 31." 2.) We returned those goods on December 2." You have been able to determine that the goods were received by the client on December 29, but not recorded until January 2. 3.) "We also owe for two more invoices for purchases we made around year-end; I'm not sure of the exact date." 4.) "We are very satisfied with Jelco and plan to purchase from them in the future." 5.) "While that's what we owe, we didn't owe it on December 31 because we didn't receive the goods until January 2 of year 2." 6.) You received no reply to a negative confirmation request to Adams Co. 7.) You received no reply to a positive confirmation request to Blake Co. Subsequently you recalled that Blake Co. has a policy of not responding to confirmations—in writing or orally.

1.) Examine shipping documents and/or subsequent cash receipts. 2.) Exception; propose an adjustment. 3.) Verify whether the additional invoices noted on the confirmation reply pertain to the year under audit or the subsequent year. 4.) Not an exception; no further audit work is necessary. 5.) Examine shipping documents and/or subsequent cash receipts. 6.) Not an exception; no further audit work is necessary. 7.) Examine shipping documents and/or subsequent cash receipts.