Question 1

An auditor should trace cancelled cheques and cleared deposits for the last part of the current audit period and the first part of the subsequent period to detect whether ________.

Accepted Answer

Tracing cancelled cheques and cleared deposits can help detect if cash balances were overstated due to kiting, which is a fraudulent practice of creating the illusion of cash balances by transferring funds between bank accounts. The other options (A, B, and D) are not related to the purpose of tracing cancelled cheques and cleared deposits.

Question 2

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

The control objective being tested in this audit procedure is validity, which ensures that the recorded transactions are genuine and actually occurred. Vouching debits from customer accounts to supporting sales invoices helps to confirm that the sales actually took place and the customers owe the amounts recorded in the accounts receivable.

Question 3

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 from the sales journal and recalculating the cross totals of quantities and prices is accuracy, which ensures that the recorded transactions are accurate and complete.

Question 4

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 5

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 the effectiveness of internal controls can have an impact on the accuracy and reliability of the accounts receivable balance. The type of confirmation to be used, availability of staff auditors, and number of customer accounts are all important factors to consider but are not the primary consideration.

Question 6

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 7

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 8

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 9

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 10

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 11

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

Accepted Answer

Negative confirmations are not used if there are account balances in dispute as these balances require further investigation and analysis.

Question 12

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

Accepted Answer

The answer of In the audit of accounts receivable,the negative...

Question 13

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 14

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 15

Which of the following audit procedures is most likely to detect lapping by the accounts receivable clerk?

Accepted Answer

Lapping occurs when an employee applies a subsequent payment received from one customer to the account of an earlier customer who still has an outstanding receivable balance. By comparing the detail of cheques listed on a sample of deposit slips to the detail of customer credits listed on the day's posting to the customer accounts in the subsidiary ledger, auditors can detect lapping, because there will be a discrepancy in the matching of the deposit slip to the customer accounts, which contains false posting of cheque(s) on accounts receivable. Therefore, option C is the most likely procedure to detect lapping. The other options are useful in other cases but not specifically related to detecting lapping.

Question 16

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 are recorded in the accounting system.

Question 17

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 18

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 19

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 20

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.

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