audit quiz 11
There is a presumption that auditors will 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 would provide the most assurance concerning the valuation of accounts receivable?
Assess the allowance for uncollectible accounts for reasonableness.
Credit approval should be obtained after the goods are shipped, but before the related sales invoice is prepared.
f
The confirmation of the client's trade accounts receivable is a means of obtaining evidential matter and is specifically considered to be a generally accepted auditing:
procedure
The person maintaining the accounts receivable subsidiary ledger should reconcile the subsidiary ledger to the accounts receivable controlling account at least once a month.
f
The primary control that prevents the shipping department from making unauthorized shipments of merchandise is the use of serially numbered shipping documents.
f
Tracing a sample of shipping documents to recorded sales is designed to test the existence of recorded sales.
f
When it is "impossible" to confirm accounts receivable, the auditors can never issue an unmodified opinion on the client's financial statements.
f
When merchandise is shipped, the shipping department completes a document known as a sales order.
f
The use of the positive (as opposed to the negative) form of receivables confirmation is indicated when:
there is reason to believe that a substantial number of accounts may be in dispute.
To test the existence assertion for recorded receivables, the auditors would select a sample from the:
Accounts receivable subsidiary ledger.
An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31, 20X0. By this procedure, the auditor would be most likely to learn of which of the following?
An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.
To determine that sales transactions have been recorded in the proper accounting period, the auditors perform a cutoff review. Which of the following best describes the overall approach used when performing a cutoff review?
Analyze transactions occurring within a few days before and after year end.
Recording of sales made in the subsequent period.
Comparing recorded sales several days before and after the balance sheet date with shipping documents.
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 statements regarding the audit of negotiable notes receivable is correct?
Confirmation in writing from the holder of the note is considered an acceptable alternative to inspection.
Recording fictitious accounts receivable.
Confirming a sample of accounts receivable.
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 would be the best protection for a company that wishes to prevent the "lapping" of trade accounts receivable?
Have customers send payments directly to the company's depository bank.
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.
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.
To determine that all sales have been recorded, the auditors would select a sample of transactions from the:
Shipping documents file.
Failing to inform the auditors of pledged accounts receivable.
Reviewing standard confirmations from financial institutions.
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 an effective control over accounts receivable?
The billing function should be assigned to persons other than those responsible for maintaining accounts receivable subsidiary records.
Which of the following is an example of misappropriation of assets relating to sales?
Theft of cash register sales.
Which of the following audit procedures is most effective in testing credit sales for understatement?
Trace sample of initial sales slips through summaries to recorded general ledger sales.
Failing to record all sales transactions.
Tracing a sample of shipping documents to recorded sales transactions.
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.
For effective internal control, the billing function should be performed by the:
accounting department.
Smith Manufacturing Company's accounts receivable clerk has a friend who is also Smith's customer. The accounts receivable clerk, on occasion, has issued fictitious credit memorandums to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to:
require receiving reports to support all credit memorandums before they are approved.
The auditors should perform alternative auditing procedures on all negative confirmation requests that are not returned.
f
The best evidence of interest revenue on notes receivable is confirmation with the maker of the note.
f
Sales can be recorded in the sales journal directly from serially numbered purchase orders, thus eliminating the need for sales invoices to be serially numbered.
f
Since customers that cannot pay are ordinarily asked not to reply, mailing of confirmations is a test of collectibility of accounts receivable.
f
The accounts receivable section of the accounting department should open incoming mail and post collections to the customer's accounts.
f
Accounts receivable that are pledged as collateral for loans should be reclassified as noncurrent assets.
f
Accounts with zero balances and accounts that have been written off as uncollectible are not confirmed by the auditors.
f
Inspection of notes receivable is adequate evidence of the existence of the notes.
f
There is a presumption that auditors will confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low.
nd accounts receivable are immaterial, or the use of confirmations would be ineffective.
The auditors have not been able to confirm a large account receivable, but they have satisfied themselves as to the proper amount of the receivable by means of alternative auditing procedures. The auditors' report on the financial statements should include:
neither a comment on the use of alternative auditing procedures nor an opinion qualification.
A note receivable from an officer is considered a related party receivable.
t
Accounts receivable should be valued at their net realizable value.
t
Receivables judged to be uncollectible should be written off.
t
The auditors should mail confirmation requests, and the enclosed envelope for the customer's reply should be addressed to the auditors' office.
t
The auditors will generally confirm a proportionately larger sample of accounts with large balances than accounts with small balances.
t
The use of serial numbers on shipping documents and sales invoices provides assurance that all goods shipped are billed to customers and recorded as sales.
t
The auditor examines copies of sales invoices only for the initials of the person responsible for checking the extensions. This is an example of a:
test of controls.
