Question 1

Which of the following is not a balance- related audit objective evaluated in the audit of accounts receivable?
A) Timing.
B) Completeness.
C) Accuracy.
D) Realizable value.

Accepted Answer

Timing is not a balance-related audit objective for accounts receivable; it is more relevant to transaction-related audit objectives. Balance-related objectives focus on the existence, completeness, accuracy, classification, rights and obligations, and realizable value of the accounts receivable at the balance sheet date.

Question 2

Which of the following is not a balance- related audit objective evaluated in the audit of accounts receivable?
A) Accuracy.
B) Completeness.
C) Occurrence.
D) Rights.

Accepted Answer

Occurrence is an assertion more commonly associated with revenue recognition and transactions, ensuring that recorded events or transactions have actually occurred and pertain to the entity. In the context of auditing accounts receivable, the focus is typically on accuracy (the amounts recorded are correct), completeness (all receivables that should be recorded are recorded), and rights (the entity has a claim to the receivables). Occurrence relates more to the transactions that give rise to the receivables rather than the ending balance of accounts receivable itself.

Question 3

Cutoff misstatements occur when:

Accepted Answer

D

Question 4

Accounting standards require that material sales returns and allowances be:
A) recorded in the period when the credit memo is issued.
B) recorded as a debit to the sales account.
C) matched with related sales.
D) recorded in the period when the merchandise is returned.

Accepted Answer

Accounting standards emphasize the matching principle, which requires that expenses be matched with the revenues they help to generate. In the case of sales returns and allowances, this means they should be matched with the related sales to accurately reflect the net revenue for the period.

Question 5

The most effective test of details of accounts receivable is the:
A) examination of sales invoices.
B) detail tie- in of the records.
C) confirmation of accounts receivable.
D) analysis of the allowance for doubtful accounts.

Accepted Answer

Confirmation of accounts receivable directly involves the debtor and is considered the most effective test of details for verifying the existence and accuracy of recorded receivables.

Question 6

A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31. This represents:

Accepted Answer

The answer of A customer mails and records a check...

Question 7

Cutoff misstatements can occur for:

Accepted Answer

The answer of Cutoff misstatements can occur for: ...

Question 8

Accounting standards require that sales returns and allowances be matched with related sales:
A) if required by industry practice.
B) if the amounts are material.
C) if practical.
D) any of the above.

Accepted Answer

Sales returns and allowances should be matched with related sales if the amounts are material, as this ensures accurate financial reporting and compliance with accounting principles.

Question 9

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

Accepted Answer

The answer of How might the auditor determine whether a...

Question 10

Which of the following is the least important consideration in determining the sample size of confirmations?
A) Total annual credit sales.
B) The results of related analytical procedures.
C) The auditor's assessment of detection risk.
D) The types of confirmations being sent; that is, positive or negative

Accepted Answer

The answer of Which of the following is the least...

Question 11

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

Accepted Answer

The answer of A threefold approach is typically followed when...

Question 12

Sampling used for tests of details provides results in terms of:
A) percentages.
B) expectation rates.
C) dollars.
D) exception rates.

Accepted Answer

Sampling for tests of details typically provides results in terms of dollars, as it aims to determine the dollar amounts of misstatements in financial records.

Question 13

Tolerable misstatements for overstatements and understatements:
A) must be expressed in percentages.
B) must be set at the same amount.
C) must be different amounts.
D) may be different amounts.

Accepted Answer

Tolerable misstatements for overstatements and understatements may be different amounts based on the auditor's assessment of risk and materiality for different aspects of the financial statements. This allows auditors to apply professional judgment and tailor their audit approach to the specific circumstances of the audit.

Question 14

Tests for rates of occurrence are appropriately used in all but which of the following situations?

Accepted Answer

The answer of Tests for rates of occurrence are appropriately...

Question 15

Which of the following is not a term relevant to sampling for tests of details?
A) Analysis of misstatements.
B) Define the exception conditions.
C) Estimate misstatements in the population.
D) Acceptable risk of incorrect acceptance.

Accepted Answer

Defining exception conditions is relevant to tests of controls, not tests of details.

Question 16

When auditors sample for tests of details of balances, the objective is to determine whether the:
A) account balance being audited is fairly stated.
B) transactions being audited are free of misstatements.
C) controls being tested are operating effectively.
D) transactions and account balances being audited are fairly stated.

Accepted Answer

The primary objective of sampling for tests of details of balances is to determine if the account balance being audited is fairly stated, ensuring its accuracy and reliability in the financial statements.

Question 17

What is the purpose of applying stratified sampling to a population?

Accepted Answer

The answer of What is the purpose of applying stratified...

Question 18

Which of the following is not a likely item on which to apply stratification techniques?
A) Dollar value of accounts receivable.
B) Number of sales per customer in a period.
C) Customer names of account receivables.
D) Aging of accounts receivable.

Accepted Answer

Stratification techniques are used to analyze and categorize data that can be quantitatively assessed or has a natural order, such as dollar values, numbers of sales, or aging categories. Customer names do not fit this criterion as they are qualitative data without a natural order or quantitative value, making them unsuitable for stratification.

Question 19

Tolerable misstatement is used to:

Accepted Answer

The answer of Tolerable misstatement is used to: ...

Question 20

If acceptable audit risk is increased, ARIA should be:
A) unaffected.
B) reduced.
C) increased.
D) modified.

Accepted Answer

When the acceptable audit risk is increased, it means the auditor is willing to take on more risk that the financial statements may be materially misstated without detecting such misstatement. As a result, the auditor may decide to increase the assessed risk of material misstatement (ARIA) to align the audit approach with the higher level of acceptable audit risk.

Quiz 6: Completing the Tests in the Sales and Collection Cycle: Accounts Receivable, Audit Sampling for Tests of Details of Balances, and Audit of the Acquisition and Payment Cycle

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

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

Cutoff misstatements occur when:

Accounting standards require that material sales returns and allowances be:

The most effective test of details of accounts receivable is the:

A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31. This represents:

Cutoff misstatements can occur for:

Accounting standards require that sales returns and allowances be matched with related sales:

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

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

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

Sampling used for tests of details provides results in terms of:

Tolerable misstatements for overstatements and understatements:

Tests for rates of occurrence are appropriately used in all but which of the following situations?

Which of the following is not a term relevant to sampling for tests of details?

When auditors sample for tests of details of balances, the objective is to determine whether the:

What is the purpose of applying stratified sampling to a population?

Which of the following is not a likely item on which to apply stratification techniques?

Tolerable misstatement is used to:

If acceptable audit risk is increased, ARIA should be: