Question 1

In the audit of accounts receivable, the negative form of confirmation request is most likely to be used when ________.

Accepted Answer

The negative form of confirmation is used when the risk is low, as it assumes that recipients will respond only if they disagree with the information, making it suitable when the assessed risk is low.

Question 2

In the audit of cash, the auditor obtains a bank cutoff statement primarily to ________.

Accepted Answer

A bank cutoff statement helps the auditor verify the transactions around the year-end, ensuring that the items listed on the client's year-end bank reconciliation are appropriate and accurately reflected.

Question 3

The most effective audit procedure for determining if an account receivable will be collected is ________.

Accepted Answer

The answer of The most effective audit procedure for determining...

Question 4

Scanning sales invoices to determine whether there are any numbers missing in the sequence is a control over which of the following objectives?

Accepted Answer

The control of scanning sales invoices to determine whether there are any numbers missing in the sequence is a control over the completeness objective, ensuring that all sales transactions have been recorded and no transactions have been omitted.

Question 5

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

Accepted Answer

When there is no response to a positive confirmation request, auditors perform alternative procedures to verify the existence of accounts receivable, as it directly impacts the audit evidence regarding the existence assertion.

Question 6

In determining the adequacy of the allowance for uncollectible accounts, the least valuable evidence would be obtained from ________.

Accepted Answer

Lack of a reply to negative confirmations is considered the least valuable evidence because it does not necessarily indicate that the customer agrees with the account balance; it may simply indicate a lack of response.

Question 7

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates exceptions and comments noted by respondents. By this procedure, the auditor is most likely to learn of which of the following?

Accepted Answer

Confirming accounts receivable primarily helps in identifying discrepancies in the records, such as unrecorded payments or errors. Lapping, which involves manipulating accounts to cover embezzlement, is likely to be detected through confirmation discrepancies. Other options involve activities that wouldn't directly affect the balances or existence of receivables confirmed with customers.

Question 8

An unrecorded cheque issued during the last week of the year would most likely be discovered by the auditor when the ________.

Accepted Answer

An unrecorded cheque issued during the last week of the year could be cleared by the bank in the next year. Therefore, reconciling the cutoff bank statement would help the auditor detect any unrecorded cheques issued during the last week of the year. The other options, such as reviewing the cheque register or bank confirmation, may not necessarily reveal any unrecorded cheque issued during the last week of the year. Searching for unrecorded liabilities is too broad and would not specifically target unrecorded cheques issued during a particular week.

Question 9

The bank confirmation provides the most evidence for which of the following assertions about cash?

Accepted Answer

Bank confirmations primarily serve to verify the existence of cash balances reported by a company, ensuring that the amounts reflected in the financial statements actually exist at the bank.

Question 10

A customer replies to a positive confirmation as follows: "We dispute the $250 charge from your client as the goods were never received." This confirmation ________.

Accepted Answer

The customer's dispute over the charge because the goods were never received indicates that there is a question about the existence of the asset (the receivable from the customer's perspective). Since the customer is disputing the charge, it suggests that the valuation of the receivable (the $250 charge) cannot be considered accurate until the dispute is resolved. This does not necessarily provide evidence that the goods were never shipped or that the account should be written off; it simply highlights a discrepancy that needs to be addressed.

Question 11

The control objective associated with selecting a sample of recorded sales invoices from the sales journal and recalculating the cross totals of quantities and prices is ________.

Accepted Answer

The control objective associated with selecting a sample of recorded sales invoices, recalculating the cross totals of quantities and prices, and comparing it with the totals recorded in the general ledger and sub-ledger is to ensure the accuracy of the data. This helps in detecting any errors or discrepancies in the data and ensuring that the financial statements are accurate and reliable. Therefore, the correct answer is D) accuracy.

Question 12

Auditors ordinarily send a standard bank confirmation to all banks with which the client has done business during the year under audit, regardless of whether the client has closed its account. One reason for doing so is to ________.

Accepted Answer

Sending a standard bank confirmation to all banks, including those with closed accounts, helps auditors uncover unrecorded liabilities and security agreements that the client may not have disclosed.

Question 13

To gather evidence about transactions with related parties, an auditor would most likely ________.

Accepted Answer

Scanning the aged trial balance for names of officers and directors is a direct method to identify transactions with related parties, as these individuals are often involved in such transactions. This helps the auditor to focus on potential areas where related party transactions might occur, ensuring that they are properly disclosed and accounted for in the financial statements.

Question 14

The primary consideration when planning to confirm accounts receivable before the balance sheet date is the ________.

Accepted Answer

The client's internal control over transactions affecting receivables is the primary consideration when planning to confirm accounts receivable before the balance sheet date. This is because strong internal controls reduce the risk of errors or fraud in the accounts receivable balance, which may allow the auditor to perform less extensive testing. The type of confirmation to be used, availability of staff auditors, and number of customer accounts are all secondary considerations.

Question 15

In the course of examining the cutoff bank statement for a client, an auditor is puzzled to discover that none of the cheques listed as outstanding on the year-end bank reconciliation has cleared the bank. This could be an indication that the client ________.

Accepted Answer

The answer of In the course of examining the cutoff...

Question 16

If it is impracticable to confirm accounts receivable but the auditor obtains sufficient, appropriate evidence to verify the receivable balance by performing alternative procedures, the auditor's opinion should be unqualified. The audit report should ________.

Accepted Answer

When an auditor is able to obtain sufficient, appropriate evidence through alternative procedures, despite not being able to confirm accounts receivable, they can issue an unqualified (clean) opinion without the need to mention the alternative procedures in the audit report. This is because the auditor's primary responsibility is to determine whether the financial statements are free of material misstatement, regardless of the methods used to arrive at that conclusion.

Question 17

In the audit of accounts receivable, negative confirmations are not normally used if ________.

Accepted Answer

Negative confirmations are not appropriate when account balances are in dispute because customers may not respond accurately or at all, leading to unreliable audit evidence.

Question 18

Which of the following procedures is an auditor most likely to perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?

Accepted Answer

Inspecting the shipping records documenting the merchandise sold to the debtors is a direct way to verify the existence and accuracy of accounts receivable balances when confirmation replies are not received. This approach provides evidence that the sales transactions occurred, supporting the existence of the receivables.

Question 19

In which of the following circumstances is the use of the negative form of accounts receivable confirmation most likely to be justified?

Accepted Answer

The answer of In which of the following circumstances is...

Question 20

Selecting a sample of debits from customer accounts receivable records and vouching them to supporting sales invoices is an audit procedure designed to obtain evidence about the control objective of ________.

Accepted Answer

This audit procedure is designed to obtain evidence about the validity of the recorded debits, meaning that the amounts billed to customers are accurate and represent valid sales transactions. Vouching these debits to supporting sales invoices helps ensure that the sales actually occurred and are accurately recorded in the customer accounts.

Quiz 11: The Revenues, Receivables, and Receipts Process and Cash Account Balance