Question 1

If the auditor decides not to confirm accounts receivable,the auditor should:
A) always use alternative procedures to audit the accounts receivable.
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.

Accepted Answer

If the auditor decides not to confirm accounts receivable, they should document the reasons for such a decision in the audit files. However, they may not always need to use alternative procedures or include copies of customer statements or sales invoices in the audit files. The best practice is to document the decision and reasoning behind it to ensure the audit work is properly documented and can be reviewed by others.

Question 2

Tests of the realizable value balance-related audit objective are for the purpose of evaluating the allowance for doubtful accounts.

Accepted Answer

Tests of the realizable value balance-related audit objective are focused on assessing the allowance for doubtful accounts, which is a key component of the balance sheet. The purpose of these tests is to determine whether the allowance is sufficient to cover potential losses from uncollectible debts, and whether it has been appropriately calculated based on historical experience and management's estimates.

Question 3

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:
A) representation letter.
B) negative confirmation.
C) bank confirmation.
D) positive confirmation.

Accepted Answer

This type of communication is a positive confirmation, as it requests the debtor to confirm directly whether the balance is correct or incorrect. A representation letter is a letter from management to auditors representing certain information, a negative confirmation requests a response only if the recipient disagrees with the balance, and a bank confirmation is a similar type of communication but specifically sent to a bank to confirm account balances.

Question 4

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?
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.

Accepted Answer

The answer of When positive confirmations are used,auditing standards require...

Question 5

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:
A) no reply to a positive confirmation request is received.
B) no reply to a negative confirmation request is received.
C) collectability of the receivables is in doubt.
D) pledging of the receivables is probable.

Accepted Answer

The answer of An auditor should perform alternative procedures to...

Question 6

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.

Accepted Answer

Confirmations sent as close to the balance sheet date as possible provide the most reliable evidence as they reflect the account balances at the end of the reporting period and minimize the risk of subsequent changes to the balances. Sending confirmations at various times throughout the year (B) or several months before the year-end (C) may not provide relevant and reliable evidence. Sending confirmations to the same group in the sample at different times (D) may introduce a time bias.

Question 7

Describe the differences between positive and negative confirmations.Which type is generally viewed as more reliable?

Accepted Answer

The answer of Describe the differences between positive and negative...

Question 8

The most effective audit evidence gathered for 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.

Accepted Answer

The confirmation of accounts receivable is the most effective audit evidence for accounts receivable as it provides direct and reliable evidence of the existence and accuracy of the balances. The other options (detail tie-in of the records, analysis of the allowance for doubtful accounts, and examination of sales invoices) are also important audit procedures for accounts receivable, but they do not provide the same level of assurance as a confirmation.

Question 9

Confirmation of accounts receivable balances normally provides evidence concerning the:
A) valuation of the balances.
B) rights of the balances.
C) existence of the balances.
D) completeness of the balances.

Accepted Answer

Confirmation of accounts receivable balances provides evidence of the existence of the balances. It does not provide evidence on the valuation, rights, or completeness of the balances.

Question 10

Auditing standards require the confirmation of accounts receivable in normal circumstances.What are the two exceptions to this requirement?

Accepted Answer

The answer of Auditing standards require the confirmation of accounts...

Question 11

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

Accepted Answer

Confirmations provide the most appropriate evidence for test of details of balances for accounts receivable as they directly confirm the existence and accuracy of the balances with the customers. Recalculation, tracing credit memos, and tracing from shipping documents provide supporting evidence, but they do not directly confirm the balances with the customers.

Question 12

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.

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 13

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

Accepted Answer

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

Question 14

A type of positive confirmation known as a blank confirmation:
A) requests the recipient to fill in the amount of the balance.
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.

Accepted Answer

Blank confirmation requests the recipient to fill in the amount of the balance, making it easier for them to respond. While it may not be as reliable as a regular positive confirmation form, it is commonly used for confirming several small balances.

Question 15

Which of the following is the principle "weakness" of using negative confirmations for your tests of details of balances for accounts receivable?
A) They can only be used for large balance accounts.
B) They cannot not be used when account balances "bunch" around a mean value.
C) Conclusions drawn from receiving no reply may not be correct.
D) Response rates are generally too low to draw any conclusions.

Accepted Answer

Negative confirmations can only confirm the existence of exceptions, not the completeness of the population. Conclusions drawn from receiving no reply may not be correct, as there may be reasons why the recipient did not respond (e.g. they did not receive the request, they misunderstood the request, etc.). Therefore, negative confirmations should only be used as a supplemental procedure and not viewed as conclusive evidence.

Question 16

For most audits,a proper cash receipts cutoff is less important than either the sales or the sales returns and allowances cutoff since cash only affects the balance sheet,and not earnings.

Accepted Answer

The answer of For most audits,a proper cash receipts cutoff...

Question 17

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

Accepted Answer

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

Question 18

Confirmation is the most common test of details of balances for the accuracy of accounts receivable.

Accepted Answer

Confirmation is the most commonly used test of details of balances for accounts receivable to ensure their accuracy.

Question 19

Confirmation of accounts receivable provide evidence related to the existence,accuracy and cutoff objectives.

Accepted Answer

Confirmation of accounts receivable provides evidence that the receivables exist, the amounts are accurate, and that they have been recorded in the appropriate accounting period. This supports the existence, accuracy, and cutoff objectives of the audit.

Question 20

The positive (as opposed to the negative)form of receivables confirmation may be preferred when:
A) internal control surrounding accounts receivable is considered to be effective.
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) the auditor believes that the recipients of the confirmations will give the requests adequate consideration.

Accepted Answer

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

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

If the auditor decides not to confirm accounts receivable,the auditor should:

Tests of the realizable value balance-related audit objective are for the purpose of evaluating the allowance for doubtful accounts.

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:

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?

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

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

Describe the differences between positive and negative confirmations.Which type is generally viewed as more reliable?

The most effective audit evidence gathered for accounts receivable is the:

Confirmation of accounts receivable balances normally provides evidence concerning the:

Auditing standards require the confirmation of accounts receivable in normal circumstances.What are the two exceptions to this requirement?

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

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

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

A type of positive confirmation known as a blank confirmation:

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

For most audits,a proper cash receipts cutoff is less important than either the sales or the sales returns and allowances cutoff since cash only affects the balance sheet,and not earnings.

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

Confirmation is the most common test of details of balances for the accuracy of accounts receivable.

Confirmation of accounts receivable provide evidence related to the existence,accuracy and cutoff objectives.

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