Chapter 11 Audit

To test the existence assertion for recorded receivables, an auditor 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.

After the CPAs have selected particular accounts receivable for confirmation:

All requests for confirmation should be mailed in envelopes bearing the CPA firm's return address and should include a return envelope addressed to the CPA firm.

An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the:

Collection of receivables.

Which procedure would be of most assistance to an auditor discovering a large credit sale that has erroneously been recorded twice?

Confirming accounts receivable.

For effective internal control, the billing function should not be performed by the:

Sales Department.

A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this end?

Sales.

What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales?

Accounts receivable are overstated at December 31, 20X0.

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal control over the revenue cycle?

Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.

Which of the following manipulations would understate receivables on the financial statements?

Closing the sales journal prior to year-end.

The confirmation of accounts receivable is most closely associated with:

Detection Risk.

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 is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

Inclusion of the information in the engagement letter.

Your client performed the physical count of inventory as of November 30, one month prior to year-end. Subsequently, your client closed the sales journal on 12/29/XX, two days before year-end, and reported those two days' credit sales in January of the next year. Assuming the client uses a perpetual inventory system, which of the following is most likely to be overstated relating to the year XX financial statements?

Inventory.

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

Physically examine items sold.

When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors' confirmation of receivables?

The account balances as of year-end will generally be confirmed.

You were surprised to note that approximately 95% of returned positive accounts receivable confirmation requests indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact that:

The cash receipts journal was held open after year-end.

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client explanations would satisfy the auditor?

The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet.

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

An audit basically consists of having the auditor form an opinion regarding management's financial statement assertions. The auditor therefore develops general and specific procedures to apply to the accounts and transactions. In a particular case, s/he might do this by:

Tracing sales invoices to shipping documents to test the occurrence of reported sales.