Question 1

The most reliable evidence from confirmations is obtained when they are sent

Accepted Answer

Confirmations are most reliable when they are sent as close to the balance sheet date as possible, because this ensures that the information obtained is the most current and accurate reflection of the account balances at the end of the reporting period. Sending confirmations too far in advance may result in outdated or inaccurate information, while sending them too close to the audit report date may not allow the auditor enough time to perform alternative procedures if necessary.

Question 2

The positive (as opposed to the negative) form of receivables confirmation may be preferred when

Accepted Answer

The answer of The positive (as opposed to the negative)...

Question 3

Cutoff misstatements can occur for sales, sales returns, and cash receipts. List below the threefold approach an auditor performs for each account above to determine the reasonableness of the cutoff.

Accepted Answer

The answer of Cutoff misstatements can occur for sales, sales...

Question 4

When determining the timing of the accounts receivable confirmations,

Accepted Answer

If accounts receivable are confirmed before year-end, the auditor typically prepares a roll-forward schedule to ensure that all sales from the confirmation date to year-end are included in the accounts receivable balance. However, the option to confirm accounts receivable at an interim date or at year-end depends on the auditor's professional judgment and assessment of the effectiveness of internal controls. There is no requirement to confirm accounts receivable at year-end if internal controls are adequate.

Question 5

A type of positive confirmation in which an individual invoice is confirmed, rather than the customer's entire accounts receivable balance, is the ________ confirmation.

Accepted Answer

Invoice confirmation specifically requests verification of individual invoices, making it distinct from confirming the entire accounts receivable balance.

Question 6

When positive confirmations are used, auditing standards require alternative procedures for confirmations not returned by the customer. Which of the following would not be considered an alternative procedure?

Accepted Answer

Sending a second confirmation request is not considered an alternative procedure for unreturned confirmations. Alternative procedures typically involve examining other evidence to verify the account balance, such as subsequent cash receipts, shipping documents, or sales invoices.

Question 7

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

Accepted Answer

When no reply is received to a positive confirmation request, auditors perform alternative procedures to verify the existence of accounts receivable, as positive confirmations are direct requests for information from debtors and lack of response raises questions about the receivable's existence. Negative confirmations, concerns about collectibility, or pledging do not directly relate to the existence verification process in the same way.

Question 8

The audit procedure that provides the auditor with the most appropriate evidence when performing test of details of balances for accounts receivable is

Accepted Answer

Confirmations are the most appropriate evidence when performing test of details of balances for accounts receivable as they provide direct communication from third-party sources to the auditor regarding the existence and accuracy of the balances.

Question 9

If the auditor decides not to confirm accounts receivable that are material, the auditor should

Accepted Answer

If the auditor decides not to confirm accounts receivable that are material, they should document the reasons for such a decision in the audit files. This documentation is important to show that the auditor exercised professional judgment when making this decision and to provide evidence that alternative procedures were used in the audit process. It is not necessary to always use alternative procedures or include copies of customer statements or sales invoices in the audit files unless the auditor determines that these procedures are necessary for adequate audit evidence.

Question 10

The most effective audit evidence gathered for accounts receivable is the

Accepted Answer

Confirmation of accounts receivable provides the most reliable and persuasive audit evidence for accounts receivable. It involves obtaining direct communication from the customer(s) to verify the accuracy and completeness of the recorded amounts. This evidence is objective, external and independent, and thus provides higher assurance than other forms of evidence such as internal documentation or analysis.

Question 11

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

Accepted Answer

The answer of Describe how the auditor tests the accuracy...

Question 12

Confirmation of accounts receivable balances normally provides evidence concerning the

Accepted Answer

Confirmation of accounts receivable balances primarily provides evidence about the existence of the balances, verifying that the balances actually exist at a given point in time.

Question 13

Confirmation of accounts receivable provides evidence related to the ________ objectives.

Accepted Answer

The answer of Confirmation of accounts receivable provides evidence related...

Question 14

A type of positive confirmation known as a blank confirmation

Accepted Answer

A blank confirmation requests the recipient to fill in the amount of the balance, allowing them to check their own records for accuracy. This type of confirmation is often used for small balances or when the auditor has reason to believe that a regular positive confirmation may be ignored or disputed. It is not considered less reliable than the regular positive confirmation, and can actually generate a higher response rate since it requires less effort on the part of the recipient.

Question 15

Assuming the client's internal controls are effective, describe how the auditor can verify proper cutoff of sales transactions.

Accepted Answer

The answer of Assuming the client's internal controls are effective,...

Question 16

Which of the following is the principle "weakness" of using negative confirmations for the tests of details of balances for accounts receivable?

Accepted Answer

Negative confirmations rely on the assumption that no response indicates agreement with the account balance, but this may not be the case. Customers may not respond for various reasons, such as misplaced or ignored requests, leading to incorrect conclusions.

Question 17

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

Accepted Answer

The answer of When should auditors not perform alternative procedures...

Question 18

A positive confirmation is more reliable evidence than a negative confirmation because

Accepted Answer

Positive confirmation is considered more reliable because it requires a response from the debtor, and if no response is received, the auditor will perform follow-up procedures to obtain confirmation, ensuring the accuracy of the information.

Question 19

Discuss the audit procedures performed when testing the detail tie-in objective for accounts receivable, and explain why this objective is ordinarily tested before any other objectives for accounts receivable.

Accepted Answer

The answer of Discuss the audit procedures performed when testing...

Question 20

Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a

Accepted Answer

A positive confirmation is a communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or not. A bank confirmation is a similar but specific type of positive confirmation used when confirming the balances of a bank account. A representation letter is a written statement from management or the owner of a business confirming certain information or financial data. A negative confirmation is a communication addressed to the debtor requesting him or her to respond only if the balance as stated on the communication is incorrect. Therefore, the best choice is D) positive confirmation.

Quiz 16: Completing the Tests in the Sales and Collection Cycle: Accounts Receivable