Multiple-Choice Questions - CPA Diary
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 |
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