Question 1

When a customer does not return an accounts receivable confirmation, it is acceptable, without performing alternative procedures, to assume the amount is 100% overstated when generalizing from the sample to the population.

Accepted Answer

The answer of When a customer does not return an...

Question 2

When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and older accounts.

Accepted Answer

Confirming larger and older accounts is considered more important in most audits of accounts receivable as they pose a higher risk of misstatement or fraudulent activity.

Question 3

When a customer disagrees with the amount shown on an account receivable confirmation, the auditor should not ask the client to reconcile the difference.

Accepted Answer

The auditor should ask the client to reconcile the difference between the amount shown on the account receivable confirmation and the customer's records. This helps to ensure the accuracy of the client's accounts receivable balance.

Question 4

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

Accepted Answer

It is common to use positive confirmations for accounts with large balances due to their higher risk, and negative confirmations for accounts with small balances, as they are considered lower risk.

Question 5

Tests of details of balances must be designed for each balance-related audit objective.

Accepted Answer

Tests of details of balances are specific procedures performed to address each balance-related audit objective. This ensures a thorough and effective audit of the financial statements.

Question 6

What are the major factors affecting sample size for confirming accounts receivable?

Accepted Answer

The answer of What are the major factors affecting sample...

Question 7

The type of receivables confirmation is a major factor affecting sample size, with negative confirmations normally requiring a larger sample than positive confirmations.

Accepted Answer

This statement is true. Negative confirmations provide less reliable evidence than positive confirmations as there is a higher risk that a customer may not respond if there is an error in the account. Therefore, auditors may need a larger sample size to compensate for this increased risk.

Question 8

Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

Accepted Answer

Tests of details of balances typically focus on testing the year-end balances of balance sheet accounts. This involves examining supporting documents and verifying the accuracy and completeness of the recorded balances.

Question 9

If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be very low, they need not confirm accounts receivable.

Accepted Answer

The answer of If auditors consider confirmations of accounts receivable...

Question 10

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 11

Auditors must maintain control of confirmations until they are returned from the customer.

Accepted Answer

Auditors need to keep control of confirmations until they are returned from the customer to ensure the accuracy and completeness of the information. This also helps to prevent any tampering or manipulation of the confirmations.

Question 12

Accounts receivable need not be confirmed if they are immaterial to the financial statements.

Accepted Answer

Accounts receivable that are immaterial can be assumed to be valid and collectible without confirmation. Therefore, no further verification is necessary as per the materiality principle in accounting.

Question 13

Blank confirmations are considered less reliable than standard positive confirmations.

Accepted Answer

The answer of Blank confirmations are considered less reliable than...

Question 14

Match seven of the terms (a-k) with the definitions provided below (1-7):
a. Accounts receivable balance-related audit objectives
b. Aged trial balance
c. Alternative procedures
d. Blank confirmation form
e. Cutoff misstatements
f. Evidence planning worksheet
g. Negative confirmation
h. Positive confirmation
i. Realizable value of accounts receivable
j. Timing difference in an account receivable confirmation
k. Invoice confirmation
________ 1. 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 and is collectible.
________ 2. 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.
________ 3. 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.
________ 4. A form used to help the auditor decide whether planned detection risk for tests of details of balances should be low, medium, or high for each balance-related audit objective.
________ 5. A letter, addressed to the debtor, requesting a response only if the recipient disagrees with the amount of the stated account balance.
________ 6. 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.
________ 7. 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.

Accepted Answer

The answer of Match seven of the terms (a-k) with...

Question 15

Negative confirmations are less expensive, and less reliable, than positive confirmations.

Accepted Answer

Negative confirmations involve requesting a response only if the recipient disagrees with the information provided, making them less reliable. However, they are less expensive to conduct than positive confirmations, which require a response regardless of agreement or disagreement with the information provided.

Question 16

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...

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