Question 1

A cutoff bank statement is a special statement printed by the bank which does not include all paid cheques and deposit slips.

Accepted Answer

A cutoff bank statement is a bank statement issued for a period shorter than the regular statement period, typically at the request of an auditor, to verify the cash transactions at the end of the accounting period. It includes all paid cheques and deposit slips up to the cutoff date.

Question 2

Is the confirmation of cash and accounts receivable required according to auditing standards? Explain.

Accepted Answer

The answer of Is the confirmation of cash and accounts...

Question 3

What are the general internal control objectives for the revenue cycle?

Accepted Answer

The answer of What are the general internal control objectives...

Question 4

The use of positive confirmations provides better evidence than the use of negative confirmations.

Accepted Answer

Positive confirmations provide direct evidence that something is true, while negative confirmations only suggest that no evidence was found to disprove something, leaving room for doubt.

Question 5

Define the response rate as it pertains to positive accounts receivable confirmations. Describe methods that can be utilized to increase the response rate.

Accepted Answer

The answer of Define the response rate as it pertains...

Question 6

Auditors should consider the possibility of kiting if there are frequent deposits of round amounts.

Accepted Answer

Frequent deposits of round amounts can be a red flag for kiting, which involves intentionally inflating the balances of two bank accounts to make it appear as though there are funds available for use when there are not. Auditors should be aware of this possibility and perform additional procedures to detect or prevent kiting.

Question 7

Will the confirmation of accounts, loans, and notes receivable always provide sufficient appropriate audit evidence to cover the ownership assertion made by the client?

Accepted Answer

The answer of Will the confirmation of accounts, loans, and...

Question 8

In testing controls related to a client's processing of credit sales transactions, auditors need to define "deviations" in advance. Give six examples of deviations from control objectives.

Accepted Answer

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Question 9

In-Line Company records accounts receivable from customers arising from both the sale of in-line skates and the provision of repair service. The CPA firm of King & King is auditing the financial statements of In-Line Company. Lyon, the audit manager, is aware that the confirmation of customer accounts receivable is a substantive procedure normally used in the audit of accounts receivable. Selected balances from In-Line's financial statements are as follows: accounts receivable, $7,000; current assets, $322,000; total assets, $630,000; shareholders' equity, $570,000; net income, $190,000.
Required:
A) How can Lyon justify deciding not to confirm In-Line's accounts receivable?
B) Briefly describe two types of positive confirmation Lyon could send to In-Line's customers.
C) What alternative procedures can Lyon perform if In-Line's customers fail to respond to the confirmation requests?

Accepted Answer

The answer of In-Line Company records accounts receivable from customers...

Question 10

Evidence of ownership can be obtained by studying the title documents for assets.

Accepted Answer

Title documents show proof of ownership for assets such as real estate, vehicles, and securities.

Question 11

What is two-direction testing?

Accepted Answer

The answer of What is two-direction testing?...

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