Deck 6: Completing the Tests in the Sales and Collection Cycle: Accounts Receivable, Audit Sampling for Tests of Details of Balances, and Audit of the Acquisition and Payment Cycle

Question 1

Which of the following is not a balance- related audit objective evaluated in the audit of accounts receivable?

A) Timing.
B) Completeness.
C) Accuracy.
D) Realizable value.

Answer 1

Timing.

Question 2

Which of the following is not a balance- related audit objective evaluated in the audit of accounts receivable?

A) Accuracy.
B) Completeness.
C) Occurrence.
D) Rights.

Answer 2

Occurrence.

Question 3

Cutoff misstatements occur when:

Answer 3

D

Question 4

Accounting standards require that material sales returns and allowances be:

A) recorded in the period when the credit memo is issued.
B) recorded as a debit to the sales account.
C) matched with related sales.
D) recorded in the period when the merchandise is returned.

Question 5

The most effective test of details of accounts receivable is the:

A) examination of sales invoices.
B) detail tie- in of the records.
C) confirmation of accounts receivable.
D) analysis of the allowance for doubtful accounts.

Question 6

A customer mails and records a check to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31. This represents:

Question 7

Cutoff misstatements can occur for:

Question 8

Accounting standards require that sales returns and allowances be matched with related sales:

A) if required by industry practice.
B) if the amounts are material.
C) if practical.
D) any of the above.

Question 9

How might the auditor determine whether a client has limited rights to accounts receivable?

Question 10

Which of the following is the least important consideration in determining the sample size of confirmations?

A) Total annual credit sales.
B) The results of related analytical procedures.
C) The auditor's assessment of detection risk.
D) The types of confirmations being sent; that is, positive or negative

Question 11

A threefold approach is typically followed when determining the reasonableness of cutoff. Briefly describe the threefold approach.

Question 12

Sampling used for tests of details provides results in terms of:

A) percentages.
B) expectation rates.
C) dollars.
D) exception rates.

Question 13

Tolerable misstatements for overstatements and understatements:

A) must be expressed in percentages.
B) must be set at the same amount.
C) must be different amounts.
D) may be different amounts.

Question 14

Tests for rates of occurrence are appropriately used in all but which of the following situations?

Question 15

Which of the following is not a term relevant to sampling for tests of details?

A) Analysis of misstatements.
B) Define the exception conditions.
C) Estimate misstatements in the population.
D) Acceptable risk of incorrect acceptance.

Question 16

When auditors sample for tests of details of balances, the objective is to determine whether the:

A) account balance being audited is fairly stated.
B) transactions being audited are free of misstatements.
C) controls being tested are operating effectively.
D) transactions and account balances being audited are fairly stated.

Question 17

What is the purpose of applying stratified sampling to a population?

Question 18

Which of the following is not a likely item on which to apply stratification techniques?

A) Dollar value of accounts receivable.
B) Number of sales per customer in a period.
C) Customer names of account receivables.
D) Aging of accounts receivable.

Question 19

Tolerable misstatement is used to:

Question 20

If acceptable audit risk is increased, ARIA should be:

A) unaffected.
B) reduced.
C) increased.
D) modified.

Question 21

As the acceptable risk of incorrect acceptance is reduced, the required sample size:

A) increases.
B) is unaffected.
C) decreases.
D) increases or decreases.

Question 22

Which of the following is the auditor least likely to consider when estimating misstatements in the population?

A) Prior experience with the client.
B) Results of current year tests of controls.
C) Results of analytical procedures already performed.
D) Acceptable audit risk.

Question 23

An auditor using nonstatistical sampling cannot formally measure sampling error and therefore must subjectively consider the possibility that the True population misstatement exceeds a tolerable amount. Which of the following factors should be considered by the auditor in making this assessment?

Question 24

In a probability proportional to size (PPS) sample, all population physical audit units with an amount equal to or greater than the amount of the interval will automatically be included in the sample if the auditor uses:

A) stratified selection.
B) block selection.
C) systematic selection.
D) random selection.

Question 25

Monetary unit sampling is also referred to as all of the following except:

A) sampling with probability proportional to size.
B) cumulative monetary amount sampling.
C) dollar unit sampling.
D) attribute sampling.

Question 26

Which of the following does not need to be considered when the auditor generalizes from the sample to the population?

Question 27

Which of the following items is not needed to apply MUS?

Question 28

Calculating the sample size using monetary unit sampling depends on which of the following factors?

Question 29

What are the three primary types of sampling methods used for calculating dollar misstatements in auditing?

Question 30

Explain ARIA and ARIR within the context of variables sampling.

Question 31

Attributes sampling tables can be used to evaluate results of tests of details with ARACR being replaced with ARIA.

Question 32

The primary factor affecting the auditor's decision about ARIA is assessed inherent risk.

Question 33

The statistical results when MUS is used are called exception bounds.

Question 34

The audit of the acquisition and payment cycle often takes ________ time to audit than other cycles.

A) less
B) no less
C) more
D) about the same

Question 35

The receipt of goods and services in the normal course of business represents the date clients normally recognize:

A) income.
B) the liability.
C) expenses.
D) warranty assets.

Question 36

The accounts payable account includes obligations for the acquisition of:

A) utilities.
B) equipment.
C) raw materials.
D) all three of the above.

Question 37

The computer- generated file that includes all acquisition transactions during a given period is the:

A) Accounts payable file.
B) Purchase approval file.
C) Acquisitions transaction file.
D) Cash disbursements file.

Question 38

Tests of controls for the acquisition and payment cycle are usually divided into:

A) tests of acquisitions and payment.
B) tests of authorization and payment.
C) tests of authorization and acquisition.
D) tests of acquisitions and classification.

Question 39

Which department should initiate a report when goods arrive from a vendor?

A) Manufacturing.
B) Receiving.
C) Treasury.
D) Accounting.

Question 40

Once the auditor has decided on the specific procedures, the acquisitions tests and the cash disbursements tests are typically performed:

A) separately.
B) sequentially.
C) at the same time.
D) independently.

Question 41

The most important controls over cash disbursements include all but which of the following?

A) Signing of checks by an authorized employee.
B) Random examination of the supporting documents by the authorized check signer before signing checks.
C) Prenumbering of checks and investigations of missing checks.
D) Separation of responsibilities for signing the checks and performing the accounts payable function.

Question 42

The test of details of balances procedure to 'trace from account payable list to vendors' invoices and statements' satisfies the objective of:

A) detail tie- in.
B) classification.
C) completeness.
D) occurrence.

Question 43

A failure to record acquisitions of goods most likely will affect all but which of the following?

A) Cash.
B) Accounts payable.
C) Net income.
D) Retained earnings.

Question 44

Assume that during cutoff testing you determined that the last receiving report number for inventory was 24986. Which of the following receiving report numbers would you not expect to be included in inventory and accounts payable at year- end?

A) 24980
B) 19773
C) 23019
D) 24990

Question 45

Which of the following is an effective internal accounting control over cash payments?

A) A check- signing machine with two signatures should be used.
B) Checks should be prepared only by persons responsible for cash receipts and disbursements.
C) Spoiled checks that have been voided should be disposed of immediately.
D) Signed checks should be mailed under the supervision of the check signer.

Question 46

Which of the following statements is False?

A) The ownership objective is an important part of verifying assets but not liabilities.
B) The success of the auditor's search for unrecorded liabilities is not dependent upon the materiality of the potential balance in the account.
C) In auditing liabilities, the emphasis is on the search for understatements rather than overstatements.
D) Because of the emphasis on understatements in liability accounts, out- of- period liability tests are important for accounts payable.

Question 47

Tests of controls and tests of transactions for the acquisition and payment cycle are normally divided into two broad areas. What are these areas?

Question 48

Explain why the confirmation of accounts payable is less common than confirmation of accounts receivable.

Question 49

Discuss the difference in the auditor's approach to the audit of assets and the audit of liabilities.

Question 50

Most companies recognize a liability when the goods are received by the company.

Question 51

A bill of lading is normally prepared at the time tangible goods are received and indicates the description of goods, the quantity received, the date received, and other relevant data.