Multiple-Choice Questions



Chapter 16

Multiple-Choice Questions

|1. |Which of the following is not a balance-related audit objective evaluated in the audit of accounts receivable? |

|easy | |

|a |a. Timing |

| |b. Realizable value |

| |c. Completeness |

| |d. Accuracy |

| | |

|2. |The two primary classes of transactions in the sales and collection cycle are: |

|easy |a. sales and sales discounts. |

|b |b. sales and cash receipts. |

| |c. sales and sales returns. |

| |d. sales and accounts receivable. |

| | |

|3. |The appropriate evidence to be obtained from tests of details must be decided on a(n): |

|easy |a. efficiency basis. |

|c |b. effectiveness basis. |

| |c. audit objectives basis. |

| |d. none of the above. |

| | |

|4. |Which of the following is not a balance-related audit objective evaluated in the audit of accounts receivable? |

|easy | |

|a |a. Occurrence |

| |b. Completeness |

| |c. Rights |

| |d. Accuracy |

| | |

|5. |Tests of which balance-related audit objective are normally performed first in an audit of the sales and collection? |

|easy | |

|d |a. Accuracy |

| |b. Completeness |

| |c. Rights |

| |d. Detail tie-in |

| | |

|6. |For most audits, inherent risk for accounts receivable is moderate or low except for which balance-related audit |

|easy |objectives? |

|d |a. Timing and realizable value. |

| |b. Completeness and existence. |

| |c. Existence and accuracy. |

| |d. Realizable value and cutoff. |

| | |

|7. |Which of the following types of receivables would not deserve the special attention of the auditor? |

|easy | |

|d |a. Accounts receivables with credit balances. |

| |b. Accounts that have been outstanding for a long time. |

| |c. Receivables from affiliated companies. |

| |d. Each of the above would receive special attention. |

| | |

|8. |A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance |

|easy |outstanding and by the amount of time the component parts have been outstanding, is the: |

|b | |

| |a. customer list. |

| |b. aged trial balance. |

| |c. accounts receivable ledger. |

| |d. schedule of accounts receivable. |

| | |

|9. |Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure, which would |

|easy |normally include: |

|a | |

| | |Test-footing the total column and the | | |

| | |columns depicting the aging | |Comparing the total of the aged trial balance with the general |

| | | | |ledger accounts receivable account |

| |a. |Yes | |Yes |

| |b. |No | |No |

| |c. |Yes | |No |

| |d. |No | |Yes |

| | |

|10. |Auditors are often concerned with three aspects of internal controls related to the sales and collection cycle. |

|easy |Which of the following is not one of those controls? |

|c |a. Controls that detect or prevent embezzlements. |

| |b. Controls over cutoff. |

| |c. Controls over acquisitions. |

| |d. Controls related to the allowance for doubtful accounts. |

| | |

|11. |Cutoff misstatements occur when: |

|easy | |

|c | |The auditor fails to obtain the end-of-year | | | | |

| | |bank statement directly from the bank, | |Subsequent period | |Current period |

| | |obtaining instead the statement which includes | |transactions are recorded| |transactions are recorded |

| | |the two succeeding weeks | |in the current period | |in the subsequent period |

| |a. |Yes | |Yes | |No |

| |b. |Yes | |No | |Yes |

| |c. |No | |Yes | |Yes |

| |d. |No | |Yes | |No |

| | |

|12. |Cutoff misstatements occur: |

|easy |a. either by error or fraud. |

|a |b. by error only. |

| |c. by fraud only. |

| |d. randomly without causes related to errors or fraud. |

| | |

|13. |Generally accepted accounting principles require that material sales returns and allowances be: |

|easy |a. recorded in the period when the merchandise is returned. |

|c |b. recorded in the period when the credit memo is issued. |

| |c. matched with related sales. |

| |d. recorded as a debit to the sales account. |

| | |

|14. |Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the |

|easy |communication is correct or incorrect is a: |

|d |a. representation letter. |

| |b. negative confirmation. |

| |c. bank confirmation. |

| |d. positive confirmation. |

| | |

|15. |A type of positive confirmation known as a blank confirmation: |

|easy |a. requests the recipient to fill in the amount of the balance. |

|a |b. is considered less reliable than the regular positive confirmation. |

| |c. generates as high a response rate as the regular positive confirmation form. |

| |d. is used when the auditor is confirming several small balances. |

| | |

|16. |For sales, the occurrence transaction-related audit objective affects the ______ balance-related audit objective. |

|medium | |

|a |a. existence |

| |b. completeness |

| |c. rights |

| |d. detail tie-in |

| | |

|17. |For cash receipts, the occurrence transaction-related audit objective affects the ______ balance-related audit |

|medium |objective. |

|b |a. existence |

| |b. completeness |

| |c. rights |

| |d. detail tie-in |

| | |

|18. |Which of the following is likely to be determined first when performing tests of details for accounts receivable? |

|medium | |

|b |a. Recorded accounts receivable exist. |

| |b. Accounts receivable in the aged trial balance agree with related master file amounts, and the total is correctly |

| |added and agrees with the general ledger. |

| |c. Accounts receivable are owned. |

| |d. Existing accounts receivable are included. |

| | |

|19. |Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the |

|medium |auditor will: |

|a |a. reduce the extent of tests of details of balances. |

| |b. reduce the extent of tests of controls. |

| |c. reduce the tests of transactions. |

| |d. reduce all of the other tests. |

| | |

|20. |The most effective test of details of accounts receivable is the: |

|medium |a. detail tie-in of the records. |

|c |b. analysis of the allowance for doubtful accounts. |

| |c. confirmation of accounts receivable. |

| |d. examination of sales invoices. |

| | |

|21. |Tests of details of balances are directed to: |

|medium |a. balance sheet accounts for all cycles. |

|a |b. income statement accounts for all cycles. |

| |c. balance sheet accounts for some cycles and income statement accounts for other cycles. |

| |d. all general ledger accounts for all cycles. |

| | |

|22. |The most important test of details of balances for accounts receivable is: |

|medium |a. confirmations. |

|a |b. recalculation of the aged receivables and uncollectible accounts. |

| |c. tracing credit memos for returned merchandise to receiving room reports. |

| |d. tracing from shipping documents to journals to the accounts receivable ledger. |

|23. |The most important test of details of balances to determine the existence of recorded accounts receivable is: |

|medium | |

|d |a. tracing details of sales invoices to shipping documents. |

| |b. tracing the credits in accounts receivable to bank deposits. |

| |c. tracing sales returns entries to credit memos issued and receiving room reports. |

| |d. the confirmation of customers’ balances. |

| | |

|24. |When should auditors not perform alternative procedures in testing the accounts receivable balance? |

|medium | |

|b |a. When customers do not return positive confirmation requests. |

| |b. When customers do not return negative confirmation requests. |

| |c. When confirmations are deemed to be ineffective as an audit procedure. |

| |d. When confirmations are too costly to use. |

|25. |Because of its central role in auditing of accounts receivable, the ______________ is one of the first items tested. |

|medium | |

|c |a. accounts receivable master file |

| |b. customer file |

| |c. aged trial balance |

| |d. sales register |

| | |

|26. |If accounts receivable accounts with credit balances are significant, they should be: |

|medium |a. written off. |

|c |b. moved to the debit side. |

| |c. reclassified as accounts payable. |

| |d. corrected by making adjusting entries. |

| | |

|27. |Most tests of accounts receivable are based on what schedule, file, or listing? |

|medium |a. Sales master file. |

|b |b. Aged accounts receivable trial balance. |

| |c. Accounts receivable master file. |

| |d. Accounts receivable general ledger account. |

| | |

|28. |If the client’s internal control for recording sales returns and allowances is evaluated as ineffective: |

|medium | |

|a |a. a larger sample is needed to verify cutoff. |

| |b. sampling is not appropriate. |

| |c. all sales returns must be traced to supporting documentation. |

| |d. all sales returns must be confirmed with the customer. |

| | |

|29. |A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives|

|medium |and records the amount on January 2. The records of the two organizations will be different on December 31. This |

|d |represents |

| | |

| | |A cutoff misstatement | |A timing difference |

| |a. |Yes | |Yes |

| |b. |No | |No |

| |c. |Yes | |No |

| |d. |No | |Yes |

| | |

|30. |Which of the following audit procedures would not likely detect a client’s decision to pledge or factor accounts |

|medium |receivable? |

|c |a. A review of the minutes of the board of directors’ meetings. |

| |b. Discussions with the client. |

| |c. Confirmation of receivables. |

| |d. Examination of correspondence files. |

| | |

|31. |When do most companies record sales returns and allowances? |

|medium |a. During the month in which the sale occurs. |

|b |b. During the accounting period in which the return occurs. |

| |c. Whenever the customer contacts the company regarding the credit. |

| |d. During the month after the sale occurs. |

| | |

|32. |Cutoff misstatements can occur for: |

|Medium | |

|a | |Sales | |Sales returns and allowances |

| |a. |Yes | |Yes |

| |b. |No | |No |

| |c. |Yes | |No |

| |d. |No | |Yes |

| | |

|33. |The most important aspect of evaluating the client’s method of obtaining a reliable cutoff is to: |

|medium |a. perform extensive detailed testing of cutoff. |

|b |b. evaluate the client’s control procedures around cutoff. |

| |c. confirm a sample of transactions near period end with customers. |

| |d. confirm transaction with customers. |

| | |

|34. |A positive confirmation is more reliable evidence than a negative confirmation because: |

|medium |a. fewer confirmations can be sent out. |

|d |b. the auditor has a document which can be used in court. |

| |c. the debtor’s lack of response indicates agreement with the stated balance. |

| |d. follow-up procedures are performed if a response is not received from the debtor. |

| | |

|35. |The advantage of using the negative form of confirmations is that: |

|medium |a. larger sample sizes can be used without increasing the costs above what would have been required for positive |

|a |confirmations. |

| |b. a non-response from the customer proves that the balance is correct. |

| |c. follow-up procedures are scheduled automatically. |

| |d. they provide greater reliance. |

| | |

|36. |Which of the following procedures do most auditors perform when auditing the allowance for doubtful accounts? |

|medium | |

|b |a. Send positive confirmations. |

| |b. Inquire of the client’s credit manager. |

| |c. Send negative confirmations. |

| |d. Examine sales invoices. |

|37. |When positive confirmations are used, auditing standards require follow-up procedures for confirmations not returned |

|medium |by the customer. In such a situation, which of the following would not be classified as an alternative procedure? |

|a | |

| |a. Send a second confirmation request. |

| |b. Examine subsequent cash receipts to determine if the receivable has been paid. |

| |c. Examine shipping documents to verify that the merchandise was shipped. |

| |d. Examine customer’s purchase order and the duplicate sales invoice to determine that the merchandise was ordered. |

| | |

|38. |Generally accepted accounting principles require that sales returns and allowances be matched with related sales: |

|medium | |

|c |a. if practical. |

| |b. if required by industry practice. |

| |c. if the amounts are material. |

| |d. any of the above. |

| | |

|39. |For which of the following accounts is cutoff least important? |

|medium |a. Sales |

|c |b. Sales returns and allowances |

| |c. Cash collections |

| |d. Inventory |

| | |

|40. |What are the possible disadvantages of evaluating the allowance for doubtful accounts by reviewing individual |

|medium |non-current balances only? |

|a | |

| | |Current accounts receivable may be ignored| |It is difficult to compare results of the current and prior |

| | | | |years |

| |a. |Yes | |Yes |

| |b. |No | |No |

| |c. |Yes | |No |

| |d. |No | |Yes |

| | |

|41. |Which of the following most likely would be detected by a review of a client’s sales cutoff? |

|medium |a. Excessive sales discounts. |

|b |b. Unrecorded sales for the year. |

| |c. Unauthorized goods returned for credit. |

| |d. Lapping of year-end accounts receivable. |

| | |

|42. |The positive (as opposed to the negative) form of receivables confirmation is preferred when: |

|medium |a. internal control surrounding accounts receivable is considered to be effective. |

|b |b. there is reason to believe that a substantial number of accounts may be in dispute. |

| |c. a large number of small balances are involved. |

| |d. there is reason to believe a significant portion of the requests will be made. |

| | |

|43. |An auditor should perform alternative procedures to substantiate the existence of accounts receivable when: |

|medium | |

|a |a. no reply to a positive confirmation request is received. |

| |b. no reply to a negative confirmation request is received. |

| |c. collectibility of the receivables is in doubt. |

| |d. pledging of the receivables is probable. |

| | |

|44. |How might the auditor determine whether a client has limited rights to accounts receivable? |

|Medium | |

|a | |Review minutes from board of directors meetings | |Inquiries of the client |

| |a. |Yes | |Yes |

| |b. |No | |No |

| |c. |Yes | |No |

| |d. |No | |Yes |

| | |

|45. |Confirmation of accounts receivable balances normally provides evidence concerning the: |

|medium |a. valuation of the balances. |

|c |b. rights of the balances. |

| |c. existence of the balances. |

| |d. completeness of the balances. |

| | |

|46. |If the auditor decides not to confirm accounts receivable, the auditor should: |

|medium |a. always use alternative procedures to audit the accounts receivable. |

|c |b. include copies of customer statements in the audit files. |

| |c. document the reasons for such a decision in the audit files. |

| |d. include copies of customer sales invoices in the audit files. |

| | |

|47. |The understatement of sales and accounts receivable is best uncovered by: |

|challenging |a. confirming receivables. |

|c |b. reviewing the aged trial balance. |

| |c. test of transactions for shipments made but not recorded. |

| |d. reconciling the accounts receivable general ledger account with the schedule of accounts receivable. |

| | |

|48. |You are reviewing sales to discover cutoff problems. If the client’s policy is to record sales when title to the |

|challenging |merchandise passes to the buyer, then the books and records would contain errors if the December 31 entries were for |

|a |sales recorded: |

| |a. before the merchandise was shipped. |

| |b. at the time the merchandise was shipped. |

| |c. several days subsequent to shipment. |

| |d. at a time after the point at which title passed. |

| | |

|49. |A procedure to test for a cash receipts cutoff error is: |

|challenging |a. reconciling the bank statement. |

|d |b. performing a four-column proof-of-cash. |

| |c. observing the counting of cash at the balance sheet date. |

| |d. tracing recorded cash receipts to bank deposits on the bank statement of a different period. |

| | |

|50. |The most reliable evidence from confirmations is obtained when they are sent: |

|challenging |a. as close to the balance sheet date as possible. |

|a |b. at various times throughout the year to different segments of the sample, so that the entire sample is |

| |representative of account balances scattered throughout the year. |

| |c. several months before the year-end, so the auditor will have adequate time to perform alternate procedures if they|

| |are required. |

| |d. at various times throughout the year to the same group in the sample, so that the sample will not have a time |

| |bias. |

| | |

|51. |Which of the following is the least important consideration in determining the sample size of confirmations? |

|challenging | |

|a |a. The types of confirmations being sent; that is, positive or negative. |

| |b. The results of related analytical procedures. |

| |c. Total annual credit sales. |

| |d. The auditor’s assessment of detection risk. |

| | |

|52. |An auditor learns that collections of accounts receivable during the first ten days of January were debited to cash |

|challenging |and credited to accounts receivable as of December 31. The effect generally will be to: |

|d | |

| |a. overstate the current ratio with no effect on working capital at December 31. |

| |b. overstate both working capital and the current ratio at December 31. |

| |c. overstate working capital with no effect on the current ratio at December 31. |

| |d. leave both working capital and the current ratio unchanged at December 31. |

| | |

|53. |For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also |

|challenging |approve: |

|c |a. employee overtime wages. |

| |b. credit granted to customers. |

| |c. write-offs of customer accounts. |

| |d. cash disbursements. |

| | |

|54. |For most audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of|

|challenging |cash: |

|c |a. is detected and correct when cash is separately audited. |

| |b. is unlikely to have a material impact on the balance sheet or the income statement. |

| |c. affects on the cash and accounts receivable balances on the balance sheet and does not affect net income. |

| |d. rarely occurs given the control consciousness of most entities. |

| | |

|55. |Negative confirmations of receivables are less effective than positive confirmations of receivables because: |

|medium | |

|b |a. they do not produce evidence that is statistically quantifiable. |

| |b. the auditor cannot infer that all non-respondents have verified their account information. |

| |c. some recipients may report incorrect balances that require extensive follow-up. |

| |d. a majority of recipients usually lack the willingness to respond objectively. |

| | |

|56. |An auditor would be least likely to use confirmations in connection with the examination of: |

|medium |a. inventories. |

|c |b. long-term debt. |

| |c. property, plant, and equipment. |

| |d. stockholders’ equity. |

| | |

|57. |An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This |

|medium |test is performed to satisfy the audit objective of: |

|d |a. accuracy. |

| |b. existence. |

| |c. control. |

| |d. completeness. |

| | |

|58. |When performing tests of controls and tests of transactions for sales, the auditor generally defines the population |

|challenging |as: |

|b |a. all accounts receivable transactions for the year. |

| |b. all sales invoices for the year. |

| |c. all cash receipts transactions for the year. |

| |d. all sales invoices less sales return credit memos. |

| | |

Essay Questions

|59. |Auditing standards require the confirmation of accounts receivable in normal circumstances. What are the three |

|easy |exceptions to this requirement? |

| |Answer: |

| |The three exceptions are: |

| |1.  Accounts receivable are immaterial. |

| |2.  The auditor considers confirmations ineffective evidence because response rates will likely be inadequate or |

| |unreliable. |

| |3.  The combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to |

| |provide sufficient evidence. |

| | |

|60. |Describe the differences between positive and negative confirmations. Which type is generally viewed as more |

|easy |reliable? |

| |Answer: |

| |A positive confirmation requests the recipient to respond regardless of whether the balance as stated on the |

| |confirmation is correct or incorrect. In contrast, a negative confirmation requests the recipient to respond only if |

| |the balance as stated on the confirmation is incorrect. Positive confirmations are more reliable because the auditor |

| |can perform follow-up procedures if a response is not received from the customer. |

| | |

|61. |A threefold approach is typically followed when determining the reasonableness of cutoff. Briefly describe the |

|medium |threefold approach. |

| |Answer: |

| |First, auditors should decide on the appropriate cutoff criteria. Second, they must evaluate whether the client has |

| |established adequate procedures to ensure a reasonable cutoff. Finally, auditors must test whether a reasonable |

| |cutoff was obtained. |

|62. |Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable |

|medium |when customers do not respond to confirmation requests. |

| |Answer: |

| |For any positive confirmation not returned, the auditor can examine the following to verify the existence of |

| |individual sales transactions making up the ending balance in accounts receivable: |

| |Subsequent cash receipts—evidence of the receipt of cash after the confirmation date includes examining remittance |

| |advices and entries in the cash receipts records. |

| |Duplicate sales invoices. |

| |Shipping documents. |

| |Correspondence between the customer and the client. |

| | |

|63. |Describe how the auditor tests the accuracy objective for accounts receivable. |

|medium | |

| |Answer: |

| |Confirmation of accounts selected from the trial balance is the most common test of details of balances for the |

| |accuracy of accounts receivable. When customers do not respond to confirmation requests, auditors examine supporting |

| |documents in the same way as described for the existence objective. Auditors perform tests of the debits and credits |

| |to individual customers’ balances by examining supporting documentation for shipments and cash receipts. |

| | |

|64. |Describe how the auditor tests the classification objective for accounts receivable. |

|medium | |

| |Answer: |

| |Normally, auditors can evaluate the classification of accounts receivable relatively easily, by reviewing the aged |

| |trial balance for material receivables from affiliates, officers, directors, or other related parties. Auditors |

| |should verify that notes receivable or accounts that should be classified as noncurrent assets are separated from |

| |regular accounts, and significant credit balances in accounts receivable are reclassified as accounts payable. |

| | |

|65. |Discuss the audit procedures performed when testing the detail tie-in objective for accounts receivable, and explain |

|medium |why this objective is ordinarily tested before any other objectives for accounts receivable. |

| |Answer: |

| |When testing the detail tie-in objective for accounts receivable, the total column and the columns depicting the |

| |aging on the aged trial balance are footed, and the total is compared to the general ledger. In addition, a sample of|

| |individual balances on the aged trial balance should be traced to supporting documents to verify the customer’s name,|

| |balance, and proper aging. These tests are ordinarily done before any other tests to assure the auditor that the |

| |population being tested agrees with the general ledger and accounts receivable master file. |

| | |

|66. |Assuming the client’s internal controls are adequate, describe how the auditor can verify proper cutoff of sales |

|medium |transactions. |

| |Answer: |

| |Assuming the client’s internal controls are adequate, the auditor can verify proper cutoff of sales transactions by |

| |obtaining the shipping document number for the last shipment made at the end of the period and comparing this number |

| |with current and subsequent period recorded sales. |

| | |

|67. |Describe how the auditor tests the rights objective for accounts receivable. |

|medium | |

| |Answer: |

| |The auditor can test the rights objective for accounts receivable through reviewing the client’s minutes, discussions|

| |with the client, confirmation with banks, and the examination of correspondence files to determine whether |

| |receivables may have been pledged as collateral, assigned to someone else, factored, or sold. |

| | |

|68. |Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive |

|medium |confirmations. |

| |Answer: |

| |The primary advantage of negative confirmations is that they are less expensive than positive confirmations because |

| |there are no second requests and no follow-up of nonresponses. The primary disadvantage of negative confirmations is |

| |that they are less reliable than positive confirmations because a nonresponse must be regarded as a correct response,|

| |even though the debtor may have ignored the confirmation request. |

| | |

|69. |Briefly describe the circumstances in which it is acceptable to use negative confirmation requests. |

|medium | |

| |Answer: |

| |It is acceptable to use negative confirmation requests only when all of the following circumstances are present: |

| |Accounts receivable is made up of a large number of small accounts. |

| |Combined assessed control risk and inherent risk is low. |

| |There is no reason to believe that the recipients of the confirmations are unlikely to give them consideration. |

| | |

|70. |Describe each of the following types of confirmations: |

|medium |Positive confirmation |

| |Blank confirmation form |

| |Invoice confirmation |

| |Negative confirmation |

| |Answer: |

| |Positive confirmations are communications addressed to a debtor requesting the recipient to confirm whether the |

| |balance as stated on the confirmation is correct or incorrect. |

| |Blank confirmation forms do not state the amount, but requests the recipient to fill in the balance or furnish other |

| |information. |

| |Invoice confirmations request a recipient to confirm an individual invoice rather than an entire balance. |

| |Negative confirmations are addressed to debtor, but request responses only if the information is incorrect. |

|71. |What are the major factors affecting sample size for confirming accounts receivable? |

|challenging | |

| |Answer: |

| |The factors include: |

| |tolerable misstatement, |

| |inherent risk (e.g., relative size of accounts receivable and number of accounts), |

| |control risk, |

| |achieved detection risk form other substantive tests, and |

| |the type of confirmation (e.g., negative normally requires a larger sample size). |

| | |

|72. |When an auditor uses negative confirmations several factors must be considered. What are those factors? |

|challenging | |

| |Answer: |

| |The auditor must carefully consider the following: |

| |The effectiveness of the client’s internal controls |

| |Results of substantive tests of transactions |

| |The appropriateness of analytical procedures as evidence on the fairness of accounts receivable. |

| |Whether a large majority of recipients will give careful consideration to the confirmation. |

| | |

Other Objective Answer Format Questions

|73. |Match seven of the terms (a-k) with the definitions provided below (1-7): |

|medium | |

| |a. Accounts receivable balance-related audit objectives |

| |b. Aged trial balance |

| |c. Alternative procedures |

| |d. Blank confirmation form |

| |e. Cutoff misstatements |

| |f. Evidence planning worksheet |

| |g. Negative confirmation |

| |h. Positive confirmation |

| |i. Realizable value of accounts receivable |

| |j. Timing difference in an account receivable confirmation |

| |k. Invoice confirmation |

| | |

|c | 1. The follow-up of a positive confirmation not returned by the debtor with the use of documentation evidence to |

| |determine whether the recorded receivable exists and is collectible. |

|h | 2. A letter, addressed to the debtor, requesting that the recipient indicate directly on the letter whether the |

| |stated account balance is correct or incorrect and, if incorrect, by what amount. |

|e | 3. Misstatements that take place as a result of current period transactions being recorded in a subsequent period,|

| |or subsequent period transactions being recorded in the current period. |

|f | 4. A form used to help the auditor decide whether planned detection risk for tests of details of balances should |

| |be low, medium, or high for each balance-related audit objective. |

|g | 5. A letter, addressed to the debtor, requesting a response only if the recipient disagrees with the amount of the|

| |stated account balance. |

|j | 6. A reported difference in a confirmation from a debtor that is determined to be a timing difference between the |

| |client’s and debtor’s records and therefore not a misstatement. |

|b | 7. A listing of the balances in the accounts receivable master file at the balance sheet date broken down |

| |according to the amount of time that has passed between the date of sale and the balance sheet date. |

| | |

|74. |Tests of details of balances must be designed for each balance-related audit objective. |

|easy |a. True |

|a |b. False |

|75. |Favorable results from analytical procedures reduce the extent to which the auditor needs to test details of |

|easy |balances. |

|a |a. True |

| |b. False |

|76. |Tests of detail tie-in are normally conducted last in the audit of the sales and collections cycle. |

|easy |a. True |

|b |b. False |

|77. |The criterion used by most merchandising and manufacturing clients for determining when a sale takes place is whether|

|easy |title to the goods has passed. |

|a |a. True |

| |b. False |

|78. |For sales, the completeness transaction-related audit objective affects the existence balance-related audit |

|medium |objective. |

|b |a. True |

| |b. False |

|79. |For cash receipts, the occurrence transaction-related audit objective affects the completeness balance-related audit |

|medium |objective. |

|a |a. True |

| |b. False |

|80. |The balance-related audit objectives of realizable value and rights are affected by assessed control risk. |

|medium |a. True |

|b |b. False |

|81. |Tests of the presentation and disclosure-related objectives are generally done as part of the completion phase of the|

|medium |audit. |

|a |a. True |

| |b. False |

|82. |Tests of details of balances focus on testing the year-end balances of balance sheet accounts. |

|medium |a. True |

|a |b. False |

|83. |Confirmation of accounts receivable provide evidence related to the existence, accuracy and cutoff objectives. |

|medium |a. True |

|a |b. False |

|84. |Confirmation is the most common test of details of balances for the accuracy of accounts receivable. |

|medium |a. True |

|a |b. False |

|85. |Accounts receivable need not be confirmed if they are immaterial to the financial statements. |

|medium |a. True |

|a |b. False |

|86. |Blank confirmations are considered less reliable than standard positive confirmations. |

|medium |a. True |

|b |b. False |

|87. |Negative confirmations are less expensive, and less reliable, than positive confirmations. |

|medium |a. True |

|a |b. False |

|88. |It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large|

|medium |balances and the former to those with small balances. |

|b |a. True |

| |b. False |

|89. |Tests of the realizable value balance-related audit objective are for the purpose of evaluating the allowance for |

|medium |doubtful accounts. |

|a |a. True |

| |b. False |

|90. |If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be |

|medium |very low, they need not confirm accounts receivable. |

|a |a. True |

| |b. False |

|91. |The type of receivables confirmation is a major factor affecting sample size, with negative confirmations normally |

|medium |requiring a larger sample than positive confirmations. |

|a |a. True |

| |b. False |

|92. |When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and |

|medium |older accounts. |

|a |a. True |

| |b. False |

|93. |When a customer disagrees with the amount shown on an account receivable confirmation, the auditor should not ask the|

|medium |client to reconcile the difference. |

|b |a. True |

| |b. False |

|94. |The accounts receivable balance-related audit objective net realizable value is not affected by assessed control risk|

|medium |for sales or cash receipts. |

|a |a. True |

| |b. False |

|95. |For most audits, a proper cash receipts cutoff is less important than either the sales or the sales returns and |

|medium |allowances cutoff. |

|a |a. True |

| |b. False |

|96. |Auditors must maintain control of confirmations until they are returned from the customer. |

|medium |a. True |

|a |b. False |

|97. |When a customer does not return an accounts receivable confirmation, it is acceptable, without performing alternative|

|medium |procedures, to assume the amount is 100% overstated when generalizing from the sample to the population. |

|a |a. True |

| |b. False |

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download