Question 1

In the sales and collection cycle,the results of the tests of controls determine

Accepted Answer

The results of tests of controls in the sales and collection cycle help auditors decide if the initially assessed control risk levels for sales and cash receipts are accurate or need adjustment based on the effectiveness of the entity's controls as observed during testing.

Question 2

As part of the audit testing,the auditor is conducting substantive analytical review over time (trend analysis)of bad debts to evaluate the quality of the accounts receivable.Which audit assertion is this associated with?

Accepted Answer

Substantive analytical review over time (trend analysis) of bad debts is associated with the valuation assertion. This assertion tests whether the accounts receivables are appropriately recorded at their net realizable value.

Question 3

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, it indicates that the auditor needs additional evidence to verify the existence of the accounts receivable. Alternative procedures are performed to gather this evidence. Positive confirmations are direct requests to confirm the balance owed, and a lack of response raises questions about the receivable's existence.

Question 4

Trade accounts receivable should exclude

Accepted Answer

Trade accounts receivable should exclude related party accounts receivable because these are not considered part of the normal trade operations and are usually disclosed separately in financial statements to ensure transparency and provide a clear view of a company's financial dealings.

Question 5

Outline the audit procedures the auditor may consider performing to validate the rights and obligations assertion for accounts receivable.

Accepted Answer

The answer of Outline the audit procedures the auditor may...

Question 6

Frag Jones Company has a December year end with a tight reporting deadline,so the auditors confirmed the accounts receivable as of November 30 using positive confirmations.In addition to following up confirmation discrepancies,the auditor should

Accepted Answer

Since Frag Jones Company has a December year end with a tight reporting deadline, the auditor cannot wait for December transactions to perform the audit testing. Therefore, the auditor should test December transactions as soon as possible to ensure the completeness and accuracy of the financial statements. The other options (B, C, D) do not address the issue of testing December transactions.

Question 7

The auditor has elected to conduct the following audit tests: reperform addition of the aged accounts receivable trial balance for the total column and for the columns depicting the aging.Which audit objective is associated with these audit tests?

Accepted Answer

The audit tests of reperforming the addition of the aged accounts receivable trial balance for the total column and the columns depicting the aging are associated with the audit objective of accuracy. By reperforming these calculations, the auditor is verifying the accuracy of the accounts receivable balances as reported in the financial statements.

Question 8

After the items for confirmation have been selected,the auditor must maintain control of the confirmations until

Accepted Answer

The auditor must maintain control of the confirmations until they are returned by the debtor to the auditor. This ensures that the responses are not altered or tampered with and that the auditor has all the necessary documentation for the audit.

Question 9

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

Accepted Answer

The answer of Discuss the alternative procedures an auditor can...

Question 10

A)Describe the differences between positive and negative confirmations.Which type is more reliable?B)Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.C)Discuss the circumstances in which it is acceptable to use negative confirmation requests.D)The auditor's decision regarding the type of accounts receivable confirmation to use involves a continuum,starting with using no confirmations in some circumstances,to using only negatives,to using both positives and negatives,to using only positives.Discuss the primary factors affecting this decision.

Accepted Answer

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

Question 11

Positive accounts receivable confirmations were circularized,and there were many differences where the client stated that the goods had not been received as of the date of the confirmation.In addition to the possibility that the goods were not received by the client,this type of reported difference could be an indication of

Accepted Answer

A cutoff misstatement occurs when a transaction or event that occurred in one period is recorded in another period. In this case, the differences could be due to sales that occurred before the confirmation date but were recorded afterwards, leading to an overstatement of accounts receivable. The possibility that the goods were not received by the client is also a potential indication of a cutoff misstatement.

Question 12

A common way to evaluate the adequacy of the bad debt allowance is to

Accepted Answer

Inspecting the noncurrent accounts on the aged trial balance helps to identify accounts that have not been paid subsequent to the balance sheet date, which is important for evaluating the adequacy of the bad debt allowance. Reviewing tests of controls, examining program logic, and sending positive confirmations can be useful audit procedures but may not directly assess the adequacy of the bad debt allowance.

Question 13

Outline the audit procedures the auditor may consider performing to validate the presentation and disclosure assertion for revenue and accounts receivables.

Accepted Answer

The answer of Outline the audit procedures the auditor may...

Question 14

Celebra sold some goods to Frankfurt Corp.Frankfurt sent a cheque to Celebra to pay for the goods on December 24.Celebra received the cheque on January 4.At December 31,Celebra still showed an account receivable from Frankfurt while Frankfurt no longer had an account payable to Celebra.This situation represents a

Accepted Answer

The situation described is a timing difference, where the payment was made by Frankfurt but not yet received by Celebra at the end of the reporting period. This will result in an account receivable being shown for Celebra, even though Frankfurt no longer has an account payable. Cutoff errors occur when transactions are recorded in the wrong accounting period, errors in presentation relate to how information is organized and presented, and a lack of communication would not result in this specific situation.

Question 15

State the five specific balance-related audit objectives as applied to accounts receivable.

Accepted Answer

The answer of State the five specific balance-related audit objectives...

Question 16

Outline the audit procedures the auditor may consider performing to validate the valuation assertion for accounts receivables.

Accepted Answer

The answer of Outline the audit procedures the auditor may...

Question 17

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

Accepted Answer

The most reliable evidence from confirmations is obtained when they are sent as close to the balance sheet date as possible. This helps to minimize the risk of material misstatement and ensures that the information obtained is relevant and reliable. Sending confirmations several months before the year-end (Choice A) may be too early and may lead to outdated information, while sending confirmations at various times throughout the year (Choices B and D) may introduce time bias or leave out important account balances.

Question 18

IFRS,ASPE,and ASNPO require that related party transactions be disclosed.Gregorio Limited has a materiality threshold of $50 000.Which of the following standards apply to the disclosure of related party transactions for Gregorio Limited?

Accepted Answer

Both IFRS and ASPE require that all related party transactions be disclosed regardless of their materiality. ASNPO also requires disclosure of related party transactions, but only those that could have a significant impact on the organization's financial statements. However, since Gregorio Limited has a materiality threshold of $50 000, it is better to disclose all related party transactions, even those below materiality, to provide users with a complete picture of the company's financial dealings with related parties.

Quiz 12: Audit of the Revenue Cycle

In the sales and collection cycle,the results of the tests of controls determine

As part of the audit testing,the auditor is conducting substantive analytical review over time (trend analysis) of bad debts to evaluate the quality of the accounts receivable.Which audit assertion is this associated with?

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

Trade accounts receivable should exclude

Outline the audit procedures the auditor may consider performing to validate the rights and obligations assertion for accounts receivable.

Frag Jones Company has a December year end with a tight reporting deadline,so the auditors confirmed the accounts receivable as of November 30 using positive confirmations.In addition to following up confirmation discrepancies,the auditor should

The auditor has elected to conduct the following audit tests: reperform addition of the aged accounts receivable trial balance for the total column and for the columns depicting the aging.Which audit objective is associated with these audit tests?

After the items for confirmation have been selected,the auditor must maintain control of the confirmations until

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

A common way to evaluate the adequacy of the bad debt allowance is to

Outline the audit procedures the auditor may consider performing to validate the presentation and disclosure assertion for revenue and accounts receivables.

State the five specific balance-related audit objectives as applied to accounts receivable.

Outline the audit procedures the auditor may consider performing to validate the valuation assertion for accounts receivables.

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

IFRS,ASPE,and ASNPO require that related party transactions be disclosed.Gregorio Limited has a materiality threshold of $50 000.Which of the following standards apply to the disclosure of related party transactions for Gregorio Limited?