Question 1

To test for the completeness balance-related audit objective, the auditor should review the accounts receivable trial balance for large or unusual items.

Accepted Answer

Testing for completeness typically involves ensuring that all transactions that should have been recorded have been recorded, not reviewing for large or unusual items, which is more related to the accuracy or valuation objectives.

Question 2

The auditor has a balance-related audit objective to determine that accounts receivable are appropriately aggregated, and related financial statement disclosures are relevant and understandable. Which of the following audit procedures would the auditor not perform in connection with this audit objective?

Accepted Answer

Using audit software to foot and cross-foot the aged accounts receivable trial balance is a substantive audit procedure that would help the auditor determine if accounts receivable are appropriately aggregated. The other answer choices are also relevant to the audit objective of determining that accounts receivable are appropriately aggregated and related financial statement disclosures are relevant and understandable.

Question 3

Describe three audit procedures an auditor would use to test for the realizable value balance-related audit objective.

Accepted Answer

The answer of Describe three audit procedures an auditor would...

Question 4

Which audit procedure would be used to test for the existence balance-related audit objective?

Accepted Answer

Confirming accounts receivable directly with the customer helps to test for the existence balance-related audit objective. It verifies that the accounts receivable listed on the client's trial balance actually exist and are owed by their customers. Option A and D relate to tracing accounts, which would test for the completeness objective instead. Option C relates to testing for the valuation objective.

Question 5

The auditor is reviewing the receivables listed on the aged trial balance for notes and related party receivables. Which balance-related audit objective is he trying to satisfy?

Accepted Answer

The auditor is checking for classification to ensure that notes and related party receivables are properly categorized and disclosed in the financial statements.

Question 6

Describe each of the following types of confirmations:
• positive confirmation
• blank confirmation
• invoice confirmation
• negative confirmation

Accepted Answer

The answer of Describe each of the following types of...

Question 7

When an auditor uses negative confirmations, several factors must be considered. What are those factors?

Accepted Answer

The answer of When an auditor uses negative confirmations, several...

Question 8

Which audit procedure would the auditor use to test for the cutoff balance-related audit objective?

Accepted Answer

To test for the cutoff balance-related audit objective, the auditor needs to verify that transactions recorded in the current period are properly included, and those recorded in the subsequent period are not included in the current period's financial statements. One way to test this is to select a sample of sales transactions from the end of the current year and the beginning of the subsequent year and trace them to the related shipping documents. This will ensure that the sales are recorded in the correct period, and the cutoff balance is accurate. Therefore, choice D is the most appropriate option. A is not relevant to the cutoff balance objective. B is related to the existence objective, and C is related to the accuracy objective, making them both inappropriate options.

Question 9

List three of the major factors affecting sample size for confirming accounts receivable.

Accepted Answer

The answer of List three of the major factors affecting...

Question 10

To determine if the client has rights to the accounts receivable on the trial balance, the auditor should inquire of management if any receivables are pledged or factored.

Accepted Answer

Inquiring about any pledged or factored receivables can help the auditor determine if the client has full rights to the accounts receivable on the trial balance.

Question 11

Match between columns
                        Premises: a letter, addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct or incorrect and, if incorrect, by what amount
the follow-up of a positive confirmation not returned by the debtor with the use of documentation evidence to determine whether the recorded receivable exists
misstatements that take place as a result of current period transactions being recorded in a subsequent period, or subsequent period transactions being recorded in the current period
a listing of the balances in the accounts receivable master file at the balance sheet date broken down according to the amount of time that has passed between the date of sale and the balance sheet date
a letter, addressed to the debtor, requesting a response only if the recipient disagrees with the amount of the stated account balance
a letter, addressed to the debtor, requesting the recipient to fill in the amount of the accounts receivable balance
a reported difference in a confirmation from a debtor that is determined to be a timing difference between the client's and debtor's records and therefore not a misstatement

Accepted Answer

The Answer of realizable value of accounts receivable and positive is...

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