Question 1

Scanning sales invoices for missing numbers in the sequence would be an activity intended to satisfy what assertion?
A)Completeness.
B)Accuracy.
C)Occurrence.
D)Classification.

Accepted Answer

Scanning sales invoices for missing numbers in the sequence would be an activity intended to satisfy the completeness assertion, as it ensures that all sales invoices have been recorded and none have been missing.

Question 2

A customer reply on a positive confirmation says "We dispute the $250 charge.We believe it is excessive." This confirmation
A)provides evidence of existence.
B)does not provide evidence of existence because the customer may refuse to pay the $250 charge.
C)provides evidence that the account was understated.
D)provides evidence that the account should be written off.

Accepted Answer

The customer's reply provides evidence that there is a dispute over a specific charge, which confirms the existence of an account and a transaction.

Question 3

Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations?
A)The balance is immaterial.
B)Confirmations would be ineffective.
C)The client requests alternative procedures be performed instead.
D)Other procedures provide sufficient competent evidence.

Accepted Answer

The auditor's decision on whether to send accounts receivable confirmations should be based on the effectiveness and relevance of the confirmation process, the materiality of the balances, and the sufficiency of other audit evidence available, not merely on the client's request for alternative procedures.

Question 4

If the auditor obtains sufficient competent evidence on the client's accounts receivable balance by alternative procedures because it is impractical to confirm accounts receivable,the auditor's opinion should be unqualified and could be expected to
A)disclose the fact that alternative procedures were used due to client-imposed scope limitation.
B)disclose in the opinion paragraph that confirmation of accounts receivable was impracticable.
C)avoid mentioning the alternative procedures.
D)include an explanatory paragraph that discloses the performance of alternative procedures.

Accepted Answer

If the auditor obtains sufficient competent evidence through alternative procedures, there is no need to mention the use of alternative procedures in the audit report, and the opinion can remain unqualified without additional disclosures.

Question 5

To determine whether sales transactions have been recorded in the proper accounting period,the auditor performs cutoff tests.Which of the following best describes the overall approach used when performing cutoff tests?
A)Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period.
B)Analyze transactions occurring within a few days before and after year-end.
C)Confirm year-end transactions with regular customers.
D)Examine cash receipts in the subsequent period.

Accepted Answer

Cutoff tests involve analyzing transactions occurring around the year-end to ensure that they have been recorded in the proper accounting period. Option A is incorrect because the representation letter is not used to perform cutoff tests. Option C is incorrect because confirming year-end transactions with regular customers is not a cutoff test. Option D is incorrect because examining cash receipts in the subsequent period is not a cutoff test.

Question 6

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments.By this procedure,the auditor would be most likely to learn of which of the following?
A)One of the cashiers has been covering a personal embezzlement by lapping.
B)One of the sales clerks has not been preparing charge slips for credit sales to family and friends.
C)One of the IT control clerks has been removing all sales invoices applicable to his account from the data file.
D)The credit manager has misappropriated remittances from customers whose accounts have been written off.

Accepted Answer

Confirming accounts receivable primarily helps in identifying discrepancies in the amounts owed by customers as recorded by the company. Lapping, which involves manipulating accounts to cover embezzlement, could be detected through confirmation discrepancies, as customers might report different balances than those recorded. Other options are less likely to be discovered through this method since they involve unrecorded transactions or manipulations not directly related to customer account balances.

Question 7

Which of the following audit procedures is the most effective in testing sales for understatement?
A)Analyze the aged trial balance of recorded accounts receivable.
B)Confirm recorded accounts receivable.
C)Trace a sample of shipping documents to sales invoices recorded in the sales journal.
D)Vouch a sample of recorded sales from the sales journal to shipping documents.

Accepted Answer

Tracing shipping documents to sales invoices helps ensure that all shipments are invoiced and recorded as sales, effectively testing for understatement of sales.

Question 8

The file that contains sales transactions that were initiated in the system but are not yet completed is the
A)credit check file.
B)sales detail.
C)inventory master.
D)pending order master.

Accepted Answer

The pending order master is a file that contains all sales transactions that have been initiated in the system but have not yet been completed. This includes orders that are still awaiting payment, verification, or fulfillment. The other options, such as credit check file, sales detail, and inventory master, may contain information related to sales transactions but do not specifically track incomplete transactions in the same way as a pending order master.

Question 9

An auditor should normally perform alternative procedures to substantiate the existence of accounts receivable when
A)no reply to a positive confirmation request is received.
B)no reply to a negative confirmation request is received.
C)collectability of the receivables is in doubt.
D)pledging of the receivables is probable.

Accepted Answer

If a positive confirmation request is sent to the customer and no reply is received, it could indicate that the customer did not receive the request, did not respond or the receivables do not exist. Therefore, the auditor should perform alternative procedures to validate the existence of accounts receivable. In contrast, if no reply is received to a negative confirmation request, it is considered a reliable form of audit evidence, and no further procedures are required. Collectability and pledging of receivables are separate issues that may require additional procedures.

Question 10

In determining the adequacy of the allowance for uncollectible accounts,the least valuable evidence would be obtained from
A)an aging schedule of past due accounts that the auditor has tested.
B)correspondence with the client's collection agency.
C)financial statements of individual customers.
D)no reply to negative confirmations.

Accepted Answer

Negative confirmations, where the recipient is asked to respond only if they disagree with the information provided, are considered less reliable evidence compared to other options. This is because the lack of response does not necessarily confirm the accuracy of the account balance, as it could be due to the recipient overlooking the request or choosing not to respond for other reasons.

Question 11

Accountants should be under orders to record sales and accounts receivable when
A)the customer's order is received.
B)all supporting documentation of shipping is in order.
C)the item has been paid for.
D)the terms are agreed upon.

Accepted Answer

According to the accrual accounting method, revenue should be recognized when earned, not necessarily when payment is received. Recording sales and accounts receivable when all supporting documentation of shipping is in order, such as a bill of lading or delivery confirmation, provides evidence that the revenue has been earned and the item has been shipped to the customer. This method aligns with the matching principle, which requires that expenses be recorded in the same period as the revenue they help to generate.

Question 12

A small business owner can best offset the lack of separation of duties by
A)creating an internal audit department.
B)installing the latest computer equipment and software.
C)being actively involved in the accounting process.
D)relying on the external auditor to detect errors.

Accepted Answer

Being actively involved in the accounting process allows the small business owner to monitor the financial transactions closely and reduce the risk of errors or fraud. Without a separation of duties, it is essential to have a hands-on approach to identify any potential issues timely. Creating an internal audit department or relying solely on the external auditor may not be feasible for a small business due to the high cost involved. Installing latest computer equipment and software may help with efficiency but cannot compensate for the lack of segregation of duties.

Question 13

Confirmations of accounts receivable provide the most evidence for which of the following assertions?
A)Existence.
B)Valuation or allocation.
C)Rights and obligations.
D)Completeness.

Accepted Answer

Confirmations of accounts receivable provide evidence for the existence assertion, as they confirm that the accounts receivable actually exist and are owed to the entity. Valuation, rights and obligations, and completeness assertions may also be supported by confirmations, but the primary assertion is existence.

Question 14

When an account receivable is considered uncollectible,the person who generally authorizes the write-off is the client's
A)credit manager.
B)treasurer.
C)accountant.
D)internal auditor.

Accepted Answer

The treasurer is typically responsible for the company's cash and financial liquidity, making them the appropriate person to authorize the write-off of an account receivable considered uncollectible. This decision impacts the company's financial statements and cash flow, falling under the treasurer's purview.

Question 15

Which of the following is an example of a control activity that satisfies the accuracy control objective for sales invoices?
A)Recorded sales in the sales journal are supported by invoices.
B)Invoices,shipping documents,and sales orders are prenumbered and the numerical sequence is checked.
C)Sales are recorded in the proper account.
D)Invoice quantities are compared to shipment and customer order quantities.

Accepted Answer

Invoice quantities being compared to shipment and customer order quantities is an example of a control activity that satisfies the accuracy control objective for sales invoices. This ensures that the quantities on the invoice are accurate and that there are no discrepancies between what was shipped and what was ordered. Option A addresses completeness, option B addresses completeness and safeguarding of assets, and option C addresses classification.

Question 16

Alpha Brewery Corporation recorded sales through January 4,2018,dating them December 31,2017.This situation is an example of a violation of which of the following assertions?
A)Existence or occurrence.
B)Completeness.
C)Classification.
D)Accuracy.

Accepted Answer

The recording of sales on a later date than when they were actually made violates the completeness assertion, which requires that all transactions and events that should have been recorded have been recorded. By dating the sales in December, Alpha Brewery Corporation has left out the sales that occurred between December 31 and January 4, thereby violating the completeness assertion.

Question 17

The auditor maintains control of the mailing and receipt of confirmations by typically performing all of the following except
A)preparing the confirmation letters.
B)mailing the confirmation letters.
C)receiving the confirmation letters.
D)None of the above.

Accepted Answer

The answer of The auditor maintains control of the mailing...

Question 18

The most effective audit procedure for determining the collectability of an account receivable is the
A)review of the subsequent cash collections.
B)examination of the related sales invoice(s).
C)confirmation of the account.
D)review of authorization of credit sales to the customer and the previous history of collections.

Accepted Answer

Reviewing subsequent cash collections directly addresses the collectability of an account receivable by providing evidence that the receivable has been or can be converted into cash, which is the ultimate test of its collectability.

Question 19

Vouching debits from a sample selection of customers' accounts receivable records to supporting sales invoices is an audit procedure designed to obtain evidence about the assertion of
A)occurrence.
B)completeness.
C)classification.
D)accuracy.

Accepted Answer

The answer of Vouching debits from a sample selection of...

Question 20

The assertion that auditors will probably emphasize in the revenue and collection cycle is
A)occurrence.
B)completeness.
C)accuracy.
D)classification.

Accepted Answer

Auditors are likely to emphasize occurrence in the revenue and collection cycle, which means they will focus on ensuring that recorded transactions actually occurred and are legitimate. This is important because revenue recognition can be easily manipulated, and fraudulent transactions can be recorded to manipulate financial statements. Therefore, auditors need to check whether the recorded revenue is supported by proper documentation and is consistent with the contractual terms and conditions.

Quiz 7: Revenue and Collection Cycle

Scanning sales invoices for missing numbers in the sequence would be an activity intended to satisfy what assertion?

A customer reply on a positive confirmation says "We dispute the $250 charge.We believe it is excessive." This confirmation

Which of the following is not a valid reason for an auditor deciding not to send accounts receivable confirmations?

If the auditor obtains sufficient competent evidence on the client's accounts receivable balance by alternative procedures because it is impractical to confirm accounts receivable,the auditor's opinion should be unqualified and could be expected to

To determine whether sales transactions have been recorded in the proper accounting period,the auditor performs cutoff tests.Which of the following best describes the overall approach used when performing cutoff tests?

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

Which of the following audit procedures is the most effective in testing sales for understatement?

The file that contains sales transactions that were initiated in the system but are not yet completed is the

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

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

Accountants should be under orders to record sales and accounts receivable when

A small business owner can best offset the lack of separation of duties by

Confirmations of accounts receivable provide the most evidence for which of the following assertions?

When an account receivable is considered uncollectible,the person who generally authorizes the write-off is the client's

Which of the following is an example of a control activity that satisfies the accuracy control objective for sales invoices?

Alpha Brewery Corporation recorded sales through January 4,2018,dating them December 31,2017.This situation is an example of a violation of which of the following assertions?

The auditor maintains control of the mailing and receipt of confirmations by typically performing all of the following except

The most effective audit procedure for determining the collectability of an account receivable is the

Vouching debits from a sample selection of customers' accounts receivable records to supporting sales invoices is an audit procedure designed to obtain evidence about the assertion of

The assertion that auditors will probably emphasize in the revenue and collection cycle is