Which of the following is least likely to be used as an alternate procedure for handling nonreplies to accounts receivable confirmation requests?

1. To test the existence assertion for recorded receivables, an auditor would select a sample from the. A. Sales orders file. B. Customer purchase orders. C. Accounts receivable subsidiary ledger. >>> shipping document = existence D. Shipping documents (bills of lading) file >>> acctg record = COMPLETENESS

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   • Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?
   • Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful account?
   • Which of the following would provide the most assurance concerning the valuation of accounts receivable?
   • Which of the following factors most likely would cause a CPA to not accept a new audit engagement?

2. Which of the following is least likely to be typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmations? A. Examine bills of lading-alternate procedure-it exists. B. Physically examine items sold.- the products are no longer in the client’s premises C. Examine correspondence. D. Examine subsequent cash receipts. - alternate audit procedure - 1/10/next year-customer x paid 10m to your client

3. Your client performed the physical count of inventory as of November 30, one month prior to year- end. Subsequently, your client closed the sales journal on 12/29/XX, two days before year end, and reported those two days' credit sales in January of the next year. Assuming the client uses a perpetual inventory system which of the following is most likely to be overstated relating to the year XX financial statements? Sales will be understated; what account is overstated inventory A. Sales. B. Cash. C. Inventory. D. Accounts receivable.

4. Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable? A. The confirmations are sent on the client's letterhead. B. The customers to be confirmed are selected by the client’s internal auditors-BIG NO.. C. The client's mailroom personnel closely monitor and inspect confirmations during mailing. D. The return address on the envelope used to send the confirmation request is that of the client- customers will directly reply to the external auditor.

5. When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors' confirmation of receivables? A. The account balances as of year end will generally be confirmed through positive confirmations. B. The auditors will in general use negative rather than positive confirmations. C. The auditors will be required to confirm accounts as of an interim date (during the year under audit) instead of at year end. D. Confirmations will not be used as the auditor.

6. What type of error is the CPA most likely to discover when he/she examines all shipping reports dated in January of 20X1, shipped FOB shipping point, which were recorded in December of 20X0 as credit sales? A. Accounts receivable are overstated at December 31, 20X0. B. Accounts receivable are understated at December 31, 20X0. C. Operating expenses are overstated for the 12 months ended December 31, 20X0. D. Sales returns and allowance are overstated at December 31, 20X0.

7. Which of the following is not typically considered to be an alternate procedure for handling nonreplies to accounts receivable confirmations? A. Examine sales invoices-can be an alternate audit procedure. B. Observe the actual shipment of the products to customers. C. Inspect correspondence with customers-ok. D. Examine any subsequent cash receipts-ok.

8. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal control over the revenue cycle? A. Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables.- this is impossible B. Claims received from customers for goods returned (and unpaid for) may be intentionally recorded in other customers' accounts permitting a misappropriation of cash. C. Authorization of credit memos (sales returns) by personnel who receive cash may permit the misappropriation of cash. D. The failure to prepare shipping documents may lead to an understatement of inventory balances.

Client: there should be approval control on sales returns.. debit SALES RETURNS 100,000 evidence of returns? Products?

Credit A/R 100,

1. A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this end? A. Cash receipts. B. Payroll. C. Purchases. D. Sales.

2. Which of the following is a likely procedure to test the adequacy of the allowance for doubtful accounts VALUATION? - review the ageing schedule prepared by client. A. Examine cash receipts received after year-end. Customer paid after 6 months... (how many days past due) B. Confirm receivables.- existence C. Examine dates of purchase orders. D. Foot the receivables lead schedule.

3. Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful accounts? A. Accounts receivable divided by Cost of goods sold. B. Aging of accounts receivable. C. Cash Sales divided by Accounts receivable D. Year 2 accounts receivable compared to year one accounts receivable.

4. You were surprised to note that approximately 95% of returned positive accounts receivable confirmations indicated that the customers thought that they owed a larger balance than the amount that had been printed by your client on the confirmation. This might be explained by the fact that: A. The cash receipts journal was closed before year-end. B. The cash receipts journal was held open after year-end. Jan next year collections were recorded in dec this year. C. There are many unrecorded liabilities. D. The sales journal was held open after year-end.

5. An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the A. Collection of receivables. B. Purchase of merchandise inventory. C. Payment of accounts payable. D. Sale of long-term debt.

6. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? A. Merchandise received is not promptly reconciled to the outstanding purchase order file. B. Obsolete items included in inventory balances are rarely reduced to the lower of cost or market value. C. The write-off of receivables by personnel who receive cash permits the misappropriation of cash. D. Fictitious transactions are recorded that cause an understatement of revenue and overstatement of receivables.

7. Which of the following procedures is least likely to help auditors to assess the adequacy of management's accounting estimate of the allowance for doubtful accounts? A. Investigate confirmation exceptions for indication of amounts in dispute. B. Review accounts which have been written off as uncollectible prior to year-end. C. Investigate credit ratings for large accounts receivable. D. Discuss with the credit manager the current status of doubtful accounts.

8. Which of the following is consistent with effective internal control over sales transactions? A. The accounting department prepares a shipping report authorizing the shipment of goods. B. The accounting department accounts for all receiving reports. C. The billing department accounts for all shipping documents. = it is the concern of the billing department that there are shipments to customers that aren’t billed. D. The accounts payable department annually approves the extension of credit to customers.

9. Tracing recorded sales transactions to the bills of lading provides evidence about the: A. Completeness of sales transactions. B. Collectibility of sales transactions. C. Occurrence of sales transactions. D. Billing of all sales transactions.

10. To obtain the best evidence regarding the completeness of recorded accounts receivable, the auditors: A. Trace a sample of the bills of lading (shipments) to sales invoices>> eventually, recorded in the sales journal. B. Confirm a sample of accounts payable. C. Review the aging of accounts receivable. D. Trace a sample of recorded sales to shipping documents.

11. Which of the following generally provides the least evidence regarding the valuation of accounts receivable? A. Reviewing an aging of accounts receivable-ok. B. Examination of cash receipts subsequent to the balance sheet date-ok. C. Confirming current (0-30 day) year-end accounts receivable. D. Reviewing credit files for selected account-ok.

• but in real life (PFRS 9), all receivables will have corresponding credit loss (ECL)

1. Which of the following would indicate the need to use positive accounts receivable confirmations? A. A large population consisting of small balances. B. Good internal control over accounts receivable. C. Most accounts are with large reputable companies. D. A large number of accounts receivable are in dispute.

Dear customer,

We are being audited by our external auditors, ABC & Co., CPAs....

Kindly reply directly to our auditors...

This is not a request for a payment.

Client

1. Which of the following is not true about the confirmation of accounts receivable? A. Confirmation requests should bear the auditors' return address. B. Confirmation requests should be signed by the auditors. C. Confirmation requests should be mailed directly by the auditors. D. Confirmation requests should include a return envelope addressed to the office of the auditors.

2. Which of the following is not true about the auditors' verification of notes receivable? A. The interest revenue on notes receivable is usually audited by independent computation-true. B. Inspecting the (promissory) notes is sufficient evidence of existence of the notes. C. The auditors may evaluate the collectibility of notes (receivable) by inspecting credit files (of borrowers/customers). D. Confirmation of notes payable to banks may be accomplished in conjunction with the confirmation of cash balances.-true/ standard bank confirmation form = auditor confirms the cash balance, loan payable (N/P), collateral, due dates, interest %, etc.

3. Which of the following is not a primary objective of the auditors in the examination of accounts receivable? A. Determine the approximate realizable value. B. Consider the adequacy of internal control. C. Establish the existence of receivables. D. Determine the expected day of collection of each of the receivables.

4. Once a CPA has determined that accounts receivable have increased due to slow collections in a "tight money" environment, the CPA would be likely to: A. Increase the balance in the allowance for bad debts accounts. B. Review the going concern ramifications. C. Review the credit and collection policy. D. Expand tests of collectibility.

5. Which of the following sets of duties would ordinarily be considered basically incompatible in terms of good internal control? A. Preparation of monthly statements to customers and maintenance of the accounts payable subsidiary ledger. B. Posting to the general ledger and approval of additions and terminations relating to the payroll. C. Custody of unmailed signed checks and maintenance of expense subsidiary ledger. D. Collection of receipts on account and maintaining accounts receivable records.\

6. Tracing copies of sales invoices to shipping documents will provide evidence that all A. Shipments to customers were recorded as receivables. B. Billed sales were shipped. C. Debits to the subsidiary accounts receivable ledger are for sales shipped. D. Shipments to customers were billed.

7. When there are a large number of relatively small account balances, negative confirmation of accounts receivable is feasible if the combination of inherent risk and control risk is: A. Low, and the individuals receiving the confirmation requests are unlikely to give them adequate consideration. B. High, and the individuals receiving the confirmation requests are likely to give them adequate consideration. C. High, and the individuals receiving the confirmation requests are unlikely to give them adequate consideration. D. Low, and the individuals receiving the confirmation requests are likely to give them adequate consideration.

8. 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. Collectibility of the receivables is in doubt. D. Pledging of the receivables is probable.

9. Johnson is engaged in the audit of a utility which supplies power to a residential community. All accounts receivable balances are small and internal control is effective. Customers are billed bi- monthly. In order to determine the validity of the accounts receivable balances at the balance sheet date, Johnson would most likely: A. Examine evidence of subsequent cash receipts instead of sending confirmation requests. B. Send positive confirmation requests. C. Send negative confirmation requests.- this is theoretical answer D. Use statistical sampling instead of sending confirmation requests.

10. A CPA examines a sample of copies of December and January sales invoices for the initials of the person who verified the quantitative data. This is an example of a: A. Test of a control. B. Substantive test. C. Cutoff test. D. Statistical test.

11. In your review of ABC Company's financials, you note that Receivables have increased approximately 200% from the previous year, while Cash has declined. Further investigation reveals that 70% of ABC's receivables were booked within 7 days of the end of the quarter. If financial statement fraud is involved, which type is most likely? A. Fictitious revenues B. Timing differences C. Improper asset valuations D. Improper disclosures

Cash xxx Revenue xxx

1. Recognizing a loan received as revenue instead of as a liability has a positive effect on the reported financial statements for all of the following except: A. It understates liabilities-yes. B. It overstates revenues-yes C. It overstates net income-yes. D. It overstates assets.

2. An auditor discovered that a client's accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that A. Obsolete inventory has not yet been reduced to fair market value. B. There was an improper cutoff of sales at the end of the year. C. An unusually large receivable was written off near the end of the year. D. The aging of accounts receivable was improperly performed in both years.

3. An auditor may obtain information on the December 31 month end balance per bank in which of the following?

A. Option A B. Option B C. Option C D. Option D

1. Which of the following controls would be most likely to reduce the risk of diversion of customer receipts by a company's employees? A. A bank lockbox system. B. Approval of all disbursements by an individual independent of cash receipts. C. Monthly bank cutoff statements. D. Prenumbered remittance advices.

2. Which of the following is not a control that generally is established over cash receipts? A. To prevent abstraction of cash, a control listing of cash receipts should be prepared by mailroom personnel. B. To insure accurate posting, the accounts receivable clerk should post the customers' receipts from customers' checks. C. To insure accuracy of the accounts receivable records, the records should be reconciled monthly to the accounts receivable controlling account. D. To prevent theft of cash, receipts should be deposited daily.

3. In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a one year bank loan with a debit to cash and a credit to miscellaneous revenue. Select the most effective method for detecting this type of error. A. Foot the cash receipts journal for October. B. Send a bank confirmation as of year-end. C. Prepare a bank reconciliation as of year-end. D. Prepare a bank transfer schedule as of year-end.

4. Jones embezzled $10,000 from his company's account in Bank A. At year-end he hid the shortage by making a deposit on December 31 in Bank A, drawn on Bank B. He has not recorded the transaction on the books. This is an example of: A. Lapping. B. Kiting. C. Effective cash management. D. Related party transactions.

5. Which of the following is not a universal rule for achieving internal control over cash? A. Separate recordkeeping from accounting for cash to the extent possible. B. Deposit each day's cash receipts intact. C. Separate cash handling from recordkeeping. D. Have monthly bank reconciliations prepared by employees not responsible for the issuance of checks.

6. Which of the following is not a control over cash disbursements? A. Disbursements should be made by check. B. A check protecting machine should be used. C. Documents supporting the payment of a disbursement should be canceled by the person preparing the check to prevent reuse. D. Voided checks should be defaced and filed with paid checks.

7. Which of the following is the best audit procedure for the detection of lapping? A. Comparison of postings of cash receipts to accounts with the details of cash deposits. B. Confirmation of the cash balance. C. Reconciliation of the cash account balances. D. Preparing a proof of cash.

8. Which of the following is not confirmed on the standard form used for cash balances at financial institutions? A. Cash checking account balances. B. Cash savings account balances. C. Loans payable. D. Securities held for the client by the financial institution.

9. Internal control over marketable securities is enhanced when: A. Securities are held by the cashier. B. Securities are registered in the name of the custodian. C. Detailed records of securities are maintained by the custodian of the securities. D. Securities are held under joint control of two or more officials.

10. The Standard Bank Confirmation includes information on all of the following except: A. Date due of a direct liability. B. The principal amount paid on a direct liability. C. Description of collateral for a direct liability. D. The interest rate of a direct liability.

11. The auditors should insist that a representative of the client be present during the physical examination of securities in order to: A. Lend authority of the auditor's directives. B. Detect forged securities. C. Coordinate the return of all securities to proper locations. D. Acknowledge the receipt of securities returned.

12. The auditors' count of the client's cash should be coordinated to coincide with the: A. Consideration of the internal controls with respect to cash. B. Close of business on the balance sheet date. C. Count of investment securities. D. Count of inventories.

13. Contact with banks for the purpose of opening company bank accounts should normally be the responsibility of the corporate: A. Board of Directors. B. Treasurer. C. Controller. D. Executive Committee.

14. The Parmalat fraud case apparently involved A. A fraudulent cash confirmation. B. Kiting of funds between banks in India and banks in Pakistan. C. A bank reconciliation performed by the client that systematically understated cash. D. Major unrecorded disbursements for equipment.

15. When a client engages in transactions involving derivatives, the auditor should A. Develop an understanding of the economic substance of each derivative. B. Confirm with the client's broker whether the derivatives are for trading purposes. C. Notify the audit committee about the risks involved in derivative transactions. D. Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

16. A company's decision to use the fair value option for valuation of marketable securities is most likely to affects which of the following assertions the most? A. Completeness. B. Existence. C. Fairness. D. Presentation and Disclosure

17. An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that A. Fourth quarter payroll taxes were properly accrued and recorded, but were not paid until early in the subsequent year. B. Unrealized gains from increases in the value of available-for-sale securities were recorded in the income account for trading securities. C. The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions. D. Notice of an increase in property tax rates was received by management, but was not recorded until early in the subsequent year.

Additional Questions with Answers - Internal Controls/Tests of Controls on Revenue Cycle and Related Accounts

Additional Questions with Answers - Substantive Tests on Revenue Cycle and Related Accounts

Which of the following would be least likely to diminish the validity of evidence obtained through confirmation of accounts receivable?

Which of the following is most likely to be used in determining a proper amount to be included in the allowance for doubtful account?

Which of the following would provide the most assurance concerning the valuation of accounts receivable?

Which of the following factors most likely would cause a CPA to not accept a new audit engagement?