Chapter 10/11

Front 1

The negative request form of accounts receivable confirmation may be used when the

Back 1

Risk of Material Misstatement is = Low

Number of Small Balances is = Many

Consideration by the Recipient is = Likely

Front 2

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following confirmation letter?

Back 2

A client-prepared statement of account showing the details of the customer's account balance.

Front 3

Which of the following statements is an auditor most likely to add to the negative form of confirmation of accounts receivable to encourage timely consideration by the recipient?

Back 3

"If you do not report any differences within 15 days, it will be assumed that this statement is correct."

Front 4

Two assertions for which confirmation of accounts receivable balances provides primary evidence are

Back 4

Rights and obligations and existence.

Front 5

Auditors may use positive or negative forms of confirmation requests. An auditor most likely will use

Back 5

The negative form for small balances.

Front 6

In the confirmation of accounts receivable, the auditor would most likely

Back 6

Request confirmation of a sample of the inactive accounts.

Front 7

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because

Back 7

The auditor cannot infer that all nonrespondents have verified their account information.

Front 8

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would

Back 8

Verify the sources and contents of the faxes in telephone calls to the senders.

Front 9

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The auditor would most likely

Back 9

Verify that the amount was received.

Front 10

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn of which of the following?

Back 10

One of the cashiers has been covering a personal embezzlement by lapping.

Front 11

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

Back 11

Valuation.

Front 12

Which of the following most likely would be the result of ineffective internal control in the revenue cycle?

Back 12

Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.

Front 13

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over the invoicing function allows goods to be shipped that are not invoiced. The inadequate controls could cause an

Back 13

Understatement of revenues and receivables and an overstatement of inventory.

Front 14

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

Back 14

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Front 15

An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertion(s) of

Back 15

Classification and Understandability = No

Existence = Yes

Front 16

To gather audit evidence concerning the proper credit approval of sales at the Marvel Company, the auditor would select a sample of transaction documents from the population represented by the

Back 16

Customer order file.

Front 17

To determine whether Marvel Company's internal control operated effectively to minimize errors of failure to post invoices to the customers' accounts ledger, the auditor should select a sample of transactions from the population represented by the

Back 17

Sales invoice file.

Front 18

To gather audit evidence that uncollected items in Marvel Company's customers' accounts represented valid trade receivables, the auditor should select a sample of items from the population represented by the

Back 18

Subsidiary customers'accounts ledger.

Front 19

To determine whether Marvel Company's internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor should select a sample of transactions from the population represented by the

Back 19

Bill of lading file.

Front 20

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

Back 20

Understating the sales journal.

Front 21

Which of the following would be the best protection for a company that wishes to prevent the lapping of trade accounts receivable?

Back 21

Have customers send payments directly to the company's depository bank.

Front 22

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the

Back 22

Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

Front 23

Which of the following internal control activities most likely would deter lapping of collections from customers?

Back 23

Separation of duties between receiving cash and posting the accounts receivable ledger.

Front 24

For the purpose of effective internal control, postdated checks received from customers should be

Back 24

Restrictively endorsed.

Front 25

At which point in an ordinary sales transaction of a wholesaling business is a lack of specific authorization of least concern to the auditor in the conduct of an audit?

Back 25

Selling of goods for cash.

Front 26

To establish illegal "slush funds," corporations may divert cash received in normal business operations. An auditor would encounter the greatest difficulty in detecting the diversion of proceeds from

Back 26

Scrap sales.

Front 27

Employers bond employees who handle cash receipts because fidelity bonds reduce the possibility of employing dishonest individuals and

Back 27

Deter dishonesty by making employees aware that insurance companies may investigate and prosecute dishonest acts.

Front 28

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

Back 28

CFO.

Front 29

To conceal defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounts?

Back 29

Sales returns.

Front 30

For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve

Back 30

Write-offs of customer accounts.

Front 31

To safeguard the assets through effective internal control, accounts receivable that are written off should be transferred to

Back 31

A separate ledger.

Front 32

Sound internal control activities dictate that defective merchandise returned by customers be presented initially to the

Back 32

Receiving clerk.

Front 33

Which of the following is not a principal objective of the auditor in the audit of revenues?

Back 33

To verify cash deposited during the year.

Front 34

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of

Back 34

Completeness.

Front 35

An auditor observed that a client mails monthly statements to customers. Subsequently, the auditor reviewed evidence of follow-up on the errors reported by the customers. This test of controls was most likely performed to support management's financial statement assertion(s) of

Back 35

Classification and Understandability = No

Rights and Obligations = Yes

Front 36

Which of the following might be detected by an auditor's review of the client's sales cutoff?

Back 36

Inflated sales for the year.

Front 37

An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past 5 years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?

Back 37

The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.

Front 38

In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate?

Back 38

Sales.

Front 39

If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from the

Back 39

Shipping documents to the sales invoices.

Front 40

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the

Back 40

Meter department records to the billing (sales) register.

Front 41

If the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the

Back 41

Accounting records with the source documents.

Front 42

Which of the following most likely would give the most assurance concerning the valuation assertion about accounts receivable?

Back 42

Assessing the allowance for uncollectible accounts for reasonableness.

Front 43

Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

Back 43

Inspect the shipping records documenting the merchandise sold to the debtors.

Front 44

Once a CPA has determined that accounts receivable have increased because of slow collections in a tight money environment, the CPA is likely to

Back 44

Expand tests of collectibility.

Front 45

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account, as of October 31. By this procedure, the auditor would be most likely to learn of which of the following?

Back 45

An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.

Front 46

An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to

Back 46

Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation.

Front 47

When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent

Back 47

Substitution.

Front 48

Which of the following cash transfers results in a misstatement of cash at December 31, Year 1?

Back 48

Bank Transfer Schedule:

Disbursement:

Recorded in Books = 1/4/Yr 2

Paid by Bank = 1/5/Yr 2

Receipt:

Recorded in Books = 12/31/Yr 1

Received by Bank = 1/4/Yr 2

Front 49

Which of the following characteristics is most likely indicative of check kiting?

Back 49

Low average balance compared with high level of deposits.

Front 50

On receiving a client's bank cutoff statement, an auditor most likely will trace

Back 50

Prior-year checks listed in the cutoff statement to the year-end outstanding checklist.

Front 51

On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by

Back 51

Examining paid checks returned with the bank statement of the next accounting period after year end.

Front 52

Which of the following checks might indicate kitting?

Back 52

#202 and #404

Front 53

Which of the following checks illustrate deposits or transfers in transit at December 31, Year 1?

Back 53

#101 and #303

Front 54

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?

Back 54

Reconcile the amounts included in the statement of cash flows to the other financial statements' amounts.

Front 55

The tic mark b most likely indicates that the amount was traced to the

Back 55

Outstanding check list of the applicable bank reconciliation.

Front 56

The tick mark 0 most likely indicates that the amount was traced to the

Back 56

Deposits in transit of the applicable bank reconciliation.

Front 57

When auditing a client's statement of cash flows, an auditor will rely primarily upon

Back 57

Cross-referencing to balances and transactions considered in connection with the audit of the other financial statements.

Front 58

Many of the Granada Corporation's convertible bondholders have converted their bonds into stock during the year under audit. The independent auditor should review the Granada Corporation's statement of cash flows and related disclosures to ascertain that they show

Back 58

The issuance of the stock and reduction in convertible debt.