Question 1

Accounts receivable Controls
In the financial statements,there are many risks associated with an audit that must be considered.Identify and discuss five separate risks that may exist related to accounts receivable.

Accepted Answer

The answer of Accounts receivable Controls
In the financial statements,there are...

Question 2

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?
A)trace bill of lading to sales invoice and sales journal.
B)confirm balances of unpaid invoices with customers.
C)examine subsequent collection.
D)scan sales journal for duplicate entries.

Accepted Answer

The answer of Which of the following audit procedures does...

Question 3

Which of the following audit procedures does not address the rights,presentation and disclosure assertion for pledged,discounted,assigned,and related-party accounts receivable?
A)review work performed in other audit areas.
B)inquire of management.
C)review adequacy of allowance for doubtful accounts.
D)review loan agreements.

Accepted Answer

Reviewing the adequacy of the allowance for doubtful accounts primarily addresses the valuation assertion, not the rights, presentation, and disclosure assertion.

Question 4

Management has been found involved in many fraudulent schemes;a common one is "channel stuffing." What does "channel stuffing" involve?
A)overly complex transactions.
B)growth through stock acquisitions.
C)shipment of goods not ordered.
D)management compensation schemes.

Accepted Answer

Channel stuffing involves shipping goods to customers who have not actually ordered them, in order to artificially inflate sales numbers and meet financial targets. This can lead to inflated inventory levels, future returns or cancellations, and ultimately damage to the company's financial health.

Question 5

Confirmations of receivables
You are the auditor of Maple Bank for the year 2012.Maple has a large number of customers with consumer loan accounts.The loan accounts have balances averaging $800 in a homogeneous population and the customers usually pay close attention to their balances.
Your preliminary assessment of internal control over the loan area is that control risk is low and results of tests of controls support that assessment.Inherent risk is deemed to be lower as well.
Discuss the confirmation process and the types of confirmations that may be used for the audit of Maple Bank.Which confirmation type would you select for Maple and why?

Accepted Answer

The answer of Confirmations of receivables
You are the auditor of...

Question 6

Sources of information used for determining substantive procedures include which of the following?
A)knowledge of client's business and industry.
B)assessment of risk of material misstatement.
C)results of analytical procedures.
D)all of the above.

Accepted Answer

All of the options listed (A, B, and C) are sources of information used for determining substantive procedures. Knowledge of the client's business and industry is important in identifying potential risks and areas where material misstatements could occur. Assessing the risk of material misstatement helps auditors to focus on areas of greatest risk in designing substantive procedures. Analytical procedures also provide important insights into potential areas of concern or risk. Therefore, all of these sources are important in determining the scope and nature of substantive procedures.

Question 7

Requirements for confirming accounts receivable
Confirmation of accounts receivable is required under GAAS unless certain conditions exist.Identify the conditions that will be present in an audit that does not confirm accounts receivable.

Accepted Answer

The answer of Requirements for confirming accounts receivable
Confirmation of accounts...

Question 8

Substantive procedures for sales and receivables assertions
The auditor for Knowles,Inc.is attempting to determine whether the recorded sales and accounts receivable are supported by valid transactions.Identify the assertions being tested and develop the substantive procedures to be used to satisfy the auditor's objectives.

Accepted Answer

The answer of Substantive procedures for sales and receivables assertions
The...

Question 9

Accounts receivable presentation and disclosure
Develop a list of substantive tests to test whether pledged,discounted,assigned,and related-party accounts receivable are properly disclosed.

Accepted Answer

The answer of Accounts receivable presentation and disclosure
Develop a list...

Question 10

Which of the following is not a form of ratio analysis?
A)turnover of receivables.
B)monthly sales analysis compared with past years.
C)gross margin analysis.
D)sales in last month to total sales.

Accepted Answer

Monthly sales analysis compared with past years is not a form of ratio analysis as it does not involve comparing two financial figures to analyze a company's performance. It is simply a comparison of sales numbers over different periods of time. Ratio analysis involves calculating ratios such as the turnover of receivables, gross margin, and sales to total sales to gain insights into a company's financial health and performance.

Question 11

Improper revenue recognition
Historically the accounting profession has come under fire for fraudulent financial reporting due to questionable improper revenue recognition.Identify at least six examples of questionable revenue recognition practices that an auditor must consider in performing an audit engagement.

Accepted Answer

The answer of Improper revenue recognition
Historically the accounting profession has...

Question 12

A sample of positive confirmations is mailed for material accounts receivable balances.The auditor does not receive a response for many of the confirmations.Which of the following is not an acceptable alternative procedure?
A)subsequent collection.
B)inquiry of management.
C)mailing second and third confirmations.
D)examination of supporting documents.

Accepted Answer

Inquiry of management is not an acceptable alternative procedure for unresponsive confirmations because it does not provide sufficient audit evidence to verify the existence and accuracy of the account balances. Acceptable alternative procedures include subsequent collections, mailing second and third confirmations, and examination of supporting documents.

Question 13

Internal control over the revenue cycle
White Floyd,Inc. ,a retail store,is concerned about the lack of control procedures over the recording of sales transactions.The company is concerned that the transactions might not be recorded accurately and valued properly in accordance with GAAP.Recommend control procedures to help ensure that transactions are recorded accurately and valued properly.

Accepted Answer

The answer of Internal control over the revenue cycle
White Floyd,Inc....

Question 14

Control over completeness for the revenue cycle
What control procedures should be implemented to ensure the completeness objective is met with respect to sales?

Accepted Answer

The answer of Control over completeness for the revenue cycle
What...

Question 15

Confirmations of receivables at an interim date
When internal controls are strong,the auditor may decide to confirm receivables before year end.Roll-forward procedures are then used to obtain adequate evidence for the roll-forward period.Discuss why the auditor would want to confirm receivables before balance sheet date,the risks involved,and at least three of the roll-forward procedures that the auditor performs to gain assurance on the roll-forward period.

Accepted Answer

The answer of Confirmations of receivables at an interim date
When...

Question 16

Analytical Procedures
Explain ratio analysis as an analytical procedure used by auditor.Give examples of the ratios that auditor might want to compute.

Accepted Answer

The answer of Analytical Procedures
Explain ratio analysis as an analytical...

Quiz 10: Auditing Revenue and Related Accounts

Accounts receivable Controls In the financial statements,there are many risks associated with an audit that must be considered.Identify and discuss five separate risks that may exist related to accounts receivable.

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?

Which of the following audit procedures does not address the rights,presentation and disclosure assertion for pledged,discounted,assigned,and related-party accounts receivable?

Management has been found involved in many fraudulent schemes;a common one is "channel stuffing." What does "channel stuffing" involve?

Sources of information used for determining substantive procedures include which of the following?

Requirements for confirming accounts receivable Confirmation of accounts receivable is required under GAAS unless certain conditions exist.Identify the conditions that will be present in an audit that does not confirm accounts receivable.

Accounts receivable presentation and disclosure Develop a list of substantive tests to test whether pledged,discounted,assigned,and related-party accounts receivable are properly disclosed.

Which of the following is not a form of ratio analysis?

A sample of positive confirmations is mailed for material accounts receivable balances.The auditor does not receive a response for many of the confirmations.Which of the following is not an acceptable alternative procedure?

Control over completeness for the revenue cycle What control procedures should be implemented to ensure the completeness objective is met with respect to sales?

Analytical Procedures Explain ratio analysis as an analytical procedure used by auditor.Give examples of the ratios that auditor might want to compute.