True or False 1. When the auditor seeks evidence concerning the allowance for doubtful accounts he or she would most likely use an aged trial balance to help identify past due balances. 2. Current auditing standards do not require the confirmation of receivables if accounts receivable are not material. 3. Accounts receivable confirmations should be prepared on the auditing firm's letterhead.
True or False
1. When the auditor seeks evidence concerning the allowance for doubtful accounts he or she would most likely use an aged
2. Current auditing standards do not require the confirmation of receivables if
3. Accounts receivable confirmations should be prepared on the auditing firm's letterhead.
4. Alternative procedures to the confirmation of receivables include review of subsequent collections and examination of supporting documents.
5. Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.
6. Positive accounts receivable confirmations should be used on all accounts which represent small immaterial balances.
7. When the client has a large number of relatively small accounts receivable and the assessed level of control risk for receivables and related revenue transactions is high, the auditor is more likely to use negative confirmations.
8. The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.
9. An example of a control over the sales cycle is the authorization of price lists by the appropriate sales and marketing manager.
10. An auditor would test controls related to the occurrence/existence of sales transactions by sampling recorded revenues and tracing them back to invoices and shipping documents
11. If control risk is assessed high, the auditor may send significantly fewer confirmations for a sample of accounts receivable than if the control risk is assessed low.
12. In planning an audit for the revenue cycle, the auditor must realize the integrated relationship of evidence found between the accounts receivable and the notes payable accounts.
13. A method of testing for the completeness of sales is to test the sequence of sales invoices used during the period under audit.
14. A review of the terms of client debt agreements assists the audit of the presentation and disclosure assertion for accounts receivable.
15. The use of audit software makes the audit of the revenue cycle more effective, but not more efficient.
16. Testing cutoff involves procedures applied to sales transactions selected from those recorded several days prior to period end and several days following period end.
17. Valid evidence obtained in an audit for testing the cutoff of gross sales includes receiving reports for returned merchandise.
18. An example of a test for completeness in the revenue cycle includes the sampling of shipping documents and tracing them to the sales journal and general ledger.
19. Negative confirmations are used to confirm material balances.
20. Exceptions found in the confirmations of accounts receivable balances need not be projected as errors to the population as they are typically isolated errors.
21. A timing difference type of exception in the confirmation process may include a misunderstanding by the reader as to the date being confirmed.
22. Negative confirmations are considered to be more persuasive than positive confirmations.
23. The purpose of summarizing confirmation results is to list the extent of sales tested in relation to the response rate.
24. An auditor's primary concern with identifying related party sales and receivables rests with the presentation and disclosure assertion.
25. Customer complaints noted in returned accounts receivable confirmations may be an indicator of fraud.
26. The audit team typically reviews
27. Estimation of the allowance for doubtful accounts is a simple management decision as it is determined as a percentage of sales.
28. The auditor will come up with an independent estimation of the allowance for doubtful accounts based on a thorough understanding of the client and the client's business that is compared to the recorded allowance.
29. It is beneficial in the testing of notes receivable to confirm not only the balance of the notes, but also their terms.
30. The most important control to ensure completeness of sales and shipping is pre-numbered shipping and billing documents.
31. An aging of accounts receivable is useful in estimating the reasonableness of the allowance for doubtful accounts.
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