Audit Ch16 Arens

Front 1

When testing accounts receivable, an auditor should be concerned about all of the following audit objectives except:

Timing
Existence
Cutoff
Accuracy

Back 1

Timing

Front 2

There is a relationship between transaction-related audit objectives for sales and collection cycle and balance related audit objectives for accounts receivable in each of the following areas except:

Accuracy
Realizable value
Existence
Cutoff

Back 2

Realizable value

Front 3

Comparing account receivable aging categories as a percentage of accounts receivable with previous years is an analytical procedure to determine if there is:

An overstatement or understatement of allowance for uncollectable accounts and bad debt expense
An overstatement or understatement of sales
An overstatement or understatement of sales returns and allowances
All of the above

Back 3

An overstatement or understatement of allowance for uncollectable accounts and bad debt expense

Front 4

Confirmation is the most important test of details for:

Sales
Payroll
Accounts receivable
Fixed assets

Back 4

Accounts receivable

Front 5

When auditing accounts receivable, an auditor should be aware of the following items that may affect accounts receivable:

Assigned receivables
Factoring of receivables
Pledged receivables
All of the above

Back 5

All of the above

Front 6

A type of positive confirmation is:

Population
Invoice
Sample
Cutoff

Back 6

Invoice

Front 7

Negative confirmations for accounts receivable can be used when:

The response rate to positive confirmations in prior years was low
Control risk is high
Accounts receivable is made up of a large number of small accounts
Inherent risk is high

Back 7

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

Front 8

Which of the following is an example of a confirmation that does not require a customer response to the confirmation unless there is a problem?

Invoice
Blank
Negative
Positive

Back 8

Negative

Front 9

If a confirmation is received back from a customer with different notes on it, the auditor should:

Ignore the differences
Investigate the difference
Use the customers balance as the correct amount
Use the company's balance as the correct amount

Back 9

Investigate the difference

Front 10

A confirmations return address should be that of:

Auditors
Company employees
Board of Directors of the company
Management of the company

Back 10

Auditors

Front 11

T/F
Auditors should apply the audit objectives of chapter six to accounts receivable.

Back 11

True

Front 12

T/F
Management should develop good controls for accounts receivable to help maintain good relations with customers.

Back 12

True

Front 13

T/F
Auditors should conduct the majority of analytical procedures on accounts receivable prior to the balance sheet date.

Back 13

False

Front 14

T/F
An example of analytical procedure conducted in the Sales and Collection cycle includes the number of day's receivables outstanding.

Back 14

True

Front 15

T/F
Cutoff misstatements in accounts receivable occur when current period transactions are recorded in the current period.

Back 15

False

Front 16

T/F
An auditor should pay close attention to a company's calculation of the realizable value of accounts receivable.

Back 16

True

Front 17

T/F
Accounts receivable should be verified by an auditor through observation.

Back 17

False

Front 18

T/F
Timing of confirmation of accounts receivable is important.

Back 18

True

Front 19

T/F
It is not necessary for an auditor to follow-up on positive confirmations that are not returned by a customer.

Back 19

False

Front 20

T/F
An evidence planning worksheet is a helpful tool for an auditor planning the tests of details of balances.

Back 20

True

Front 21

38) A positive confirmation is more reliable evidence than a negative confirmation because:
a. fewer confirmations can be sent out.
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

Back 21

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

Front 22

T/F
39) Tests of details of balances must be designed for each balance-related audit objective

Back 22

True

Front 23

40) For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve:
a. employee overtime wages.
b. credit granted to customers.
c. write-offs of customer accounts.
d. cash disbursements

Back 23

c. write-offs of customer accounts.

Front 24

T/F
Favorable results from analytical procedures reduce the extent to which the auditor needs to test details of balances

Back 24

True

Front 25

The understatement of sales and accounts receivable is best uncovered by:
a. confirming receivables.
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

Back 25

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

Front 26

T/F
Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

Back 26

True

Front 27

The most reliable evidence from confirmations is obtained when they are sent:
a. as close to the balance sheet date as possible.
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.

Back 27

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

Front 28

The advantage of using the negative form of confirmations is that:
a. larger sample sizes can be used without increasing the costs above what would have been required for positive 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

Back 28

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

Front 29

T/F
46) If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be very low, they need not confirm accounts receivable.

Back 29

True

Front 30

47) If the client’s internal control for recording sales returns and allowances is evaluated as ineffective:
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

Back 30

a. a larger sample is needed to verify cutoff.

Front 31

T/F
48) When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and older accounts.

Back 31

True

Front 32

The most effective test of details of accounts receivable is the:
a. detail tie-in of the records.
b. analysis of the allowance for doubtful accounts.
c. confirmation of accounts receivable.
d. examination of sales invoices.

Back 32

c. confirmation of accounts receivable.

Front 33

T/F
Auditors must maintain control of confirmations until they are returned from the customer.

Back 33

True

Front 34

As a result of analytical procedures, the auditor determines the gross profit percentage has declined from 30% in the preceding year to 20% in the current year. The auditor should
a. express a qualified opinion due to inability of the clients company to continue as a going concern
b. evaluate managements performance in causing this decline
c. require a footnote disclosure
d. consider the possibility of a misstatement in the financial statements

Back 34

d. consider the possibility of a misstatement in the financial statements

Front 35

After a CPA has determined that accounts receivable have increased as a result of slow collections in a "tight money" environment, the CPA will be likely to
a. increase the balance in the allowance for doubtful accounts
b. review the going concern ramifications
c. review the credit and collection policy
d. expand tests of collectibility

Back 35

d. expand tests of collectibility

Front 36

In connection with his review of key ratios, the CPA notes that Pyzi had accounts receivable equal to 30 days' sales at December 31, 2008, and to 45 days' sales at conditions, clientele, or sales mix, this change most likely will indicate
a. a steady increase in sales in 2009
b. an ease of credit policies in 2009
c. a decrease in A/R relative to sales in 2009
d. a steady decrease in the sales in 2009

Back 36

b. an easing of credit policies in 2009

Front 37

The negative form of A/R confirmation requests is useful except when
a. internal control surrounding a/r is considered to be effective
b. a larger # of small balances are involved
c. the auditor has reason to believe the persons receiving the requests are likely to give them consideration
d. individual account balances are relatively large

Back 37

d. individual account balances are relatively large

Front 38

The return of a positive confirmation of A/R without an exception attests
a. collectibility of the receivable balance
b. accuracy of the receivables balance
c. accuracy of the aging of accounts receivable
d. accuracy of the allowance for uncollectable accounts

Back 38

b. accuracy of the receivables balance

Front 39

In confirming a clients account receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation responses. these differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current years audit, the auditor will most likely choose
a. individual overdue balances
b. individual invoices
c. small account balances
d. large account balances

Back 39

individual invoices

Front 40

When evaluating the adequacy of the allowance for uncollectible accounts, an auditor reviews the entity's aging of receivables to support management's balance-related assertion of
a. existence
b. completeness
c. valuation and allocation
d. rights and obligations

Back 40

completeness

Front 41

which of the following audit procedures will best uncover an understatement of sales and accounts receivable?
a. test a sample of sales transactions, selecting the sample from prenumbered shipping documents
b. test a sample of sales transactions, selecting the sample from sales invoices recorded in the sales journal
c. confirm accounts receivable
d. review the aged accounts receivable trial balance

Back 41

a. test a sample of sales transactions, selecting the sample from prenumbered shipping documents