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ACCT 460 Chapter 11
Auditing 460
15
Accounting
05/28/2010

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Term
d) Over-recorded sales due to a lack of control over the sales entry function
Definition
Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?
a) Restrictions placed on sales by laws and regulations
b) Decline in sales due to economic declines
c) Decline in sales due to product obsolescence
d) Over-recorded sales due to a lack of control over the sales entry function
Term
d) Assess the allowance for uncollectible accounts for reasonableness
Definition
Which of the following would provide the most assurance concerning the valuation of accounts receivable?
a) Trace amounts in the accounts receivable subsidiary ledger to details on shipping documents
b) Compare receivable turnover ratios to industry statistics for reasonableness
c) Inquire about receivables pledged under loan agreements
d) Assess the allowance for uncollectible accounts for reasonableness
Term
d) Recording sales when the customer is likely to return the goods
Definition
Which of the following is most likely to be an example of fraudulent financial reporting relating to sales?
a) Inaccurate billing due to lack of controls
b) Lapping of accounts receivable
c) Misbilling a client due to a data input error
d) Recording sales when the customer is likely to return the goods
Term
d) Theft of cash register sales
Definition
Which of the following is an example of misappropriation assets relating to sales?
a) Accidentally recording cash that represents a liability as revenue
b) Holding the sales journal open to record next year's sales as having occurred in the current year
c) Intentionally recording cash received from a new debt agreement as revenue
d) Theft of cash register sales
Term
a) And accounts receivable are immaterial, or the use of confirmations would be ineffective
Definition
There is a presumption that auditors will confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low
a) And accounts receivable are immaterial, or the use of confirmations would be ineffective
b) And accounts receivable are composed of large accounts
c) And the effectiveness of confirmations is absolutely determined
d) Or accounts receivable are from extremely reputable customers
Term
b) Delivery has occurred or is scheduled to occur in the near future
Definition
Which of the following is not amount the criteria that ordinarily exist for revenue to be recognized?
a) Collectibility is reasonably assured
b) Delivery has occurred or is scheduled to occur in the near future
c) Persuasive evidence of an arrangement exists
d) The seller's price to the buyer is fixed or determinable
Term
a) Shipping documents file
Definition
To determine that all sales have been recorded, the auditors would select a sample of transactions from the: a) Shipping documents file b) Sales journal c) Accounts receivable subsidiary ledger d) Remittance advices
Term
d) Inflated sales for the year
Definition
Which of the following would most likely be detected by an auditor's review of the client's sales cutoff?
a) Excessive goods returned for credit
b) Unrecorded sales discounts
c) Lapping of year-end accounts receivable
d) Inflated sales for the year
Term
c) Accounts receivable subsidiary ledger
Definition
To test the existence assertion for recorded receivables, the auditors would select a sample from the:
a) Sales orders file
b) Customer purchase orders
c) Accounts receivable subsidiary ledger
d) Shipping documents (bills of lading) file
Term
b) Completeness
Definition
Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?
a) Existence or occurrence
b) Completeness
c) Rights and obligations
d) Presentation and disclosure
Term
a) Send positive confirmation requests
Definition
Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:
a) Send positive confirmation requests
b) Send negative confirmation requests
c) Examine evidence of subsequent cash receipts
d) Inspect the internal records, such as copies of the tax invoices that were mailed to the residents
Term
a) Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence
Definition
Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-ff of a trade account receivable:
a) Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence
b) Write-offs must be approved by the accounts receivable department
c) Write-offs must be authorized by the shipping department
d) Write-offs must be supported by an aging schedule showing that only receivables overdue by several months have been written off
Term
a) The custodian of notes receivable must be responsible for cash and the general accounting records (p 431). The custodian of notes receivable should not have access to cash or the general accounting records
Definition
Which of the following is not an internal control over notes receivable?
a) The custodian of notes receivable must be responsible for cash and the general accounting records
b) The acceptance and renewal of notes be authorized in writing by a responsible official who does not have custody of the notes
c) The write-off of defaulted notes must be approved in writing by a responsible official who does not have custody of the notes
d) All of the above are correct
Term
d) The person responsible for reporting on note transactions should be the custodian of the notes
Definition
Which of the following statements is incorrect concerning internal controls over notes receivable?
a) The acceptance of a note from a customer should require written approval of a responsible official
b) Partial payments of notes should be recorded with the date and amount of the payment and the unpaid balance should be updated in the accounting system
c) internal control is strengthened by the preparation of monthly reports that summarize notes receivable transactions
d) The person responsible for reporting on note transactions should be the custodian of the notes
Term
a) Auditors often put together an internal control questionnaire to prepare a description of the company's controls (p 436)
Definition
Which of the following statements is correct?
a) Auditors often put together an internal control questionnaire to prepare a description of the company's controls
b) Auditors only care if the company has internal controls; they are not concerned about the implementation of the controls
c) The segregation of duties is not an internal control that auditors usually look for in auditing receivables and revenues
d) When auditing receivables and revenues, auditors do not review revenue budgets