Source: Wiley 2014 Study Guide, Auditing and Attestation
AUDIT OF RECEIVABLES 1.
Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain evidence in support of an assessed level of control risk below the maximum? a. Observing an entity’s employee prepare the schedule of past due accounts receivable. b. Sending confirmation requests to an entity’s principal customers to verify the existence of accounts receivable. c. Inspecting an entity’s analysis of accounts receivable for unusual balances. d. Comparing an entity’s uncollectible accounts expense to actual uncollectible accounts receivable
2. Upon receipt of customers’ checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the a. Internal auditor to investigate the listing for unusual transactions. b. Treasurer to compare the listing with the monthly bank statement. c. Accounts receivable bookkeeper to update the subsidiary accounts receivable records. d. Entity’s bank to compare the listing with the cashier’s deposit slip 3. Which of the following controls most likely would assure that all billed sales are correctly posted to the accounts receivable ledger? a. Daily sales summaries are compared to daily postings to the accounts receivable ledger. b. Each sales invoice is supported by a prenumbered shipping document. c. The accounts receivable ledger is reconciled daily to the control account in the general ledger. d. Each shipment on credit is supported by a prenumbered sales invoice 4. Proper authorization of write-offs of uncollectible accounts departments? a. Accounts receivable. b. Credit. c. Accounts payable. d. Treasurer. 5.
should be approved in which of the following
During the consideration of a small business client’s internal control, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness? a. The owner reviews errors in billings to customers and postings to the subsidiary ledger. b. The controller receives the monthly bank statement directly and reconciles the checking accounts. c. The owner reviews credit memos after they are recorded. d. The controller reconciles the total of the detail accounts receivable accounts to the amount shown in the ledger
6. When a customer fails to include a remittance advice with a payment, it is common practice for the person opening the mail to prepare one. Consequently, mail should be opened by which of the following four company employees? a. Credit manager. b. Receptionist. c. Sales manager. d. Accounts receivable clerk 7.
Which of the following statements is correct concerning the use of negative confirmation requests? a. Unreturned negative confirmation requests rarely provide significant explicit evidence. b. Negative confirmation requests are effective when detection risk is low. c. Unreturned negative confirmation requests indicate that alternative procedures are necessary. d. Negative confirmation requests are effective when understatements of account balances are suspected.
8. When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would a. Inspect the allowance account to verify whether the accounts were subsequently written off. b. Increase the assessed level of detection risk for the valuation and completeness assertions. c. Ask the client to contact the customers to request that the confirmations be returned. d. Increase the assessed level of inherent risk for the revenue cycle. 9. In confirming a client’s accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation replies. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year’s audit, the auditor most likely would choose a. Individual overdue balances. b. Individual invoices. c. Small account balances. d. Large account balances. 10. Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables’ a. Valuation. b. Classification. c. Existence.
Source: Wiley 2014 Study Guide, Auditing and Attestation
d. Completeness. 11. An auditor should 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. 12. Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? a. Review the cash receipts journal for the month prior to the year-end. b. Intensify the study of internal control concerning the revenue cycle. c. Increase the assessed level of detection risk for the existence assertion. d. Inspect the shipping records documenting the merchandise sold to the debtors. 13. In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified? a. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. b. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. c. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. d. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 14. To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, an auditor most likely would a. Request the senders to mail the original forms to the auditor. b. Examine subsequent cash receipts for the accounts in question. c. Consider the e-mail responses to the confirmations to be exceptions. d. Mail second requests to the e-mail respondents. 15. To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would a. Examine the shipping documents that provide evidence for the existence assertion. b. Verify the sources and contents of the faxes in telephone calls to the senders. c. Consider the faxes to be nonresponses and evaluate them as unadjusted differences. d. Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted.
