ACC 374 - Module 6

which of the following is not an effective alternative procedure when no reply is received for a positive confirmation?

performing analytical procedures

3 multiple choice options

true or false: the risk of sending negative confirmation is that when no reply is received, the auditor incorrectly concludes that the balance is fairly stated when, in fact, it could be materially misstated

true

which of the following procedures is least likely to aid auditors when evaluating the adequacy of the allowance for doubtful accounts (ADA)?

reviewing customers accounts written off as uncollectible before year-end

3 multiple choice options

true or false: if the terms of trade are FOB destination, a seller earns revenue when the goods are given to the carrier (UPSP

false

true or false: when auditing an estimate, the auditor may reasonably characterize a difference between their best estimate and the client's best estimate as a difference in judgement

true

true or false: when auditing revenue, auditors obtain greater assurance from tests of details than from analytical procedures

true

an auditor tested a client's periodic accounting for the numerical sequence of shipping documents and sales invoices. this internal control is relevant to which assertion?

completeness

3 multiple choice options

the auditors choice of positive or negative form confirmation for accounts receivable is likely to be impacted by:

the materiality of the accounts

3 multiple choice options

which of the following subsequent transactions provides evidence that a customer's A/R balance existed at the balance sheet date?

payment was received on the customer's year end balance

3 multiple choice options

when testing cutoff for sales and receivable at June 30 (year-end), an auditor is confronted with the following four scenarios. which of the four most likely requires the auditor to propose an adjusting entry at year-end?

terms are fob shipping point. goods were shipped on july 1st, and the sale was recorded on june 29th

3 multiple choice options

auditing A/R - existence

confirmation, sales cutoff tests

auditing A/R - rights

confirmation, sales cutoff test

auditing A/R - valuation

confirmation, sales cutoff test (accuracy), test ADA (valuation)

auditing A/R - completeness

sales cutoff tests, analytical procedures

auditing A/R - presentation and disclosure

review F/S disclosures

two types of A/R confirmations

positive and negative

positive confirmation (type of A/R confirmation)

response expected whether balance correct or not

when should positive confirmation be used?

when there are large individual A/R accounts or if there are weak I/C's

what should be done if positive confirmation is not returned?

second request and follow up, perform alternative procedures

negative confirmations (type of A/R confirmation)

response expected only if balance incorrect

goal of testing ADA

to evaluate reasonableness

procedure for testing estimates

evaluate data and collection, perform analytical procedures (A/R turnover, ratio of ADA to write offs), evaluate estimate process

evaluating test of estimates results

differences between auditors estimated ADA and clients recorded ADA are based on relative reasonableness of expectations

evaluating test of estimates results - judgemental misstatement

auditors estimate more reasonable than clients estimate

evaluating test of estimates - difference in judgement

clients estimate is equally or more reasonable than auditors estimate

key internal control for revenue

segregation of duties

duties that must be segregated for revenues

taking customer order, approving credit, maintaining inventory, shipping, billing, accounting

auditing revenue - occurrence

sales cutoff test, select recorded sales: inspect invoices and shipping document

auditing revenue - valuation

sales cutoff test, inspect invoices: agree prices to authorized price list and terms of trade

auditing revenue - completeness

sales cutoff tests, select shipping documents: inspect invoices and trace to recorded sales

auditing revenue - presentation and disclosure

review F/S disclosures

rights is not assertion for

revenue

which of the following procedures would an auditor most likely perform when the auditor did not receive replies to second request for A/R confirmations?

inspect shipping documents showing the merchandise sold to the clients customers

3 multiple choice options

an auditor who has confirmed A/R may discover that the sales journal was held open past year end if...

most of the returned positive confirmations indicate that the debtor owes a smaller balance than the amount being confirmed

3 multiple choice options

which procedure would an auditor most likely use to test for the posting of fictitious accounts receivable?

vouching debits in the accounts receivable ledger to sales invoices and shipping documents

3 multiple choice options

an auditor review credit ratings for customers with delinquent accounts receivable to obtain evidence regarding...

valuation

3 multiple choice options

the A/R turnover ratio is trending upward, this could indicate that

the company has adopted more aggressive collection policies

3 multiple choice options

the functions of which department determine when a recordable sale has occurred?

shipping department

3 multiple choice options

an auditor would most likely review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support the assertion of...

completeness

3 multiple choice options

if the objective of a test of details is to detect overstatements of sales, the auditor should compare transactions in the...

accounting records to the source documents

3 multiple choice options