Which of the following statements would an auditor most likely add Request Confirmation of a sample of the inactive accounts,

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to the negative form of confirmations of accounts receivable to Seek to obtain positive confirmations for at least 50% of the
encourage timely consideration by the recipients? total peso amount of the receivables.
A. “This is not a request for payment; remittances should not be C. Require confirmation of all receivables from agencies of the
sent to our auditors in the enclosed envelope.” government.
B. “Report any differences on the enclosed statement directly to D. Require that confirmation requests be sent within 1 month of
our auditors; no reply is necessary if this amount agrees with the fiscal year-end.
your records.”
Ce “if you dodo r not report any | differences within fifteen days, it will To reduce the risks associated with accepting fax responses to
be assumed that this tis correct.” requests for confirmations of accounts receivable, an auditor most
D. “The followingi invoices have been selected for confirmation likely would
and represent amounts that are over : A. Examine the shipping documents that provide evidence for the
existence assertion.
Auditors may use positive or negative forms of confirmation B. Verify the sources
and contents of the faxes in telephone eallé
requests for accounts receivable. An auditor most likely will use to the sen
A. The Positive form to confirm |all balances regardless of ssize. 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 beacceptable if none are noted.
CG. Acombination of the two forms, with the positive form used
for trade receivables and the negative form for other An auditor who has cOnfirmed accounts receivable may discover that
receivables. the sales journal was held open past year-end if
D. The positive form when the combined assessed level of A. _ Positive confirmations sent to debtors are not returned.
inherent and control risk for assertions related to receivables is B. Negative confirmations sent to debtors are not returned.
acceptably low, and the negative forties itis unacceptably C. Most of the returned negative confirmations indicate that the
high. Me debtor owes a larger a than the amount we
confirmed.
Negative confirmation of accounts receivable is less effective than D. Most ofthe returned fares COnFIANSHORE NSIS that the
positive confirmation of accounts receivable because debtor ‘owes a smaller balance than the amount being
A A majority of recipients usually, lack the willingness to respond confirmed. é
objectively.
B. Some recipients may report incorrect balances that require Which of the following is the greatest drawback of using subsequént
extensive follow--UP. “ collections evidenced only by a deposit slip as an alternative
Cc. The auditor ¢Cannot infer that all nonrespondents have verified procedure when responses to positive accounts receivable
their account information, confirmations are not received?
D.._ Negative confirmations do not produce evidence that is A. Checking subsequent collections can never be used as an
statistically quantifiable. alternative auditing procedure.
B. By examining a deposit slip only, the auditor does not know
All of the following are examples of substantive tests to verify the whether the payment is for the receivable at me balance sheet
valuation of net accounts receivable except the date ora subsequent transaction,
A. Recomputation of the allowance forbad debts. C. Adeposit slip is not received directly by the audit
B. Inspection of accounts for current versus noncurrent status in D. Acustomer may not have made a payment on a timely basis.
the statement of financial position.
C. Inspection of the aging schedule and credit records of past due The most likely result of ineffective internal controls in the sales
accounts. cycle is that
D. Comparison of the allowance for bad debts with past records. As» Fictitious transactions could be recorded, causing an
understatement of revenues and an overstatement of
The auditor finds a situation in which one person has the ability to receivables.
collect receivables, make deposits, issue credit memos, and record B. Irregularities in recording transactions in the subsidiary
receipt of payments. The auditor suspects the individual may be accounts could delay the shipment of goods.
stealing from cash receipts. Which of the following audit procedures C. Omission of shipping documents could go undetected, causing
would be most effective in discovering fraud in this scenario? an understatement of inventory.
A. Send positive confirmations to a random selection of D. _ Final authorization of credit memos by personnel in the sales
customers. department could permit an employee defalcation scheme.
B. Send negative confirmations to all outstanding accounts
receivable customers. Which of the following procedures concerning accounts receivable
C. Perform a detailed review of debits to customer discounts, would an auditor most likely perform to obtain evidential matter in
sales returns, or other debit accounts, excluding cash posted to support of an assessed level of control risk below the maximum
the cash receipts journal. level?
D. Take a sample of bank deposits and trace the detail in each A. _ Observing an entity's employee prepare the schedule of past
bank deposit back to the entry in the cash receipts journal. due accounts receivable.
B. Sending confirmation requests to an entity’s principal
In confirming accounts receivable, an auditor decided to confirm customers to verify the existence of accounts receivable.
customers’ account balances rather than individual invoices. Which C. Inspecting an entity's analysis of accounts receivable for
of the following most likely would be included with the client’s unusual balances.
confirmation letter? D. Comparing an entity’s uncollectible accounts payable to actual
A. Anauditor-prepared letter explaining that a non-response may uncollectible accounts receivable.
cause inference that the account balance is correct.
B. Aclient-prepared letter reminding the customer that a non- An auditor noted that the accounts receivable department is
response will cause a second request to be sent. separate from other accounting activities. Credit is approved bya
C. An auditor-prepared letter requesting the customer to supply separate credit department. Control accounts and subsidiary ledgers
missing and incorrect information directly to the auditor. are balanced monthly. Similarly, accounts are aged monthly. The
D. _ Aclient-prepared statement of account showing the details of accounts receivable manager writes off delinquent accounts after
the customer's account balance. one year or sooner, if a bankruptcy or other unusual circumstance is
involved. Credit memoranda are pre-numbered and must correlate
In the confirmation of accounts receivable, the auditor would most with receiving reports. Which of the following areas could be viewed
likely as an internal control weakness of the above organization?
 Porm Write-offs
of delinquent’accounts 21. What actions should the auditor take if a reply to a positive
Credit approvals confirmation request letter for a material amount is not received
Monthly aging of receivables from the customer within two or three weeks of being sent out?
Handling of credit memos A. Qualify the audit opinion due to lack of sufficient and
appropriate evidence.
14. An auditor tests an entity's control of obtaining credit approval Send out a'Second request to the customer

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before shipping goods to customers in support of management's Inform the entity’s internal audit department.
financial statement assertion of Qualify the audit opinion due to material misstatement in the
Al” Valuation or allocation, financial statement.
B. Completeness.
C. — Existence or occurrence. 22; Which of the following strategies should give an auditor the
D. Rights and obligations. 9 strongest assurance as to existence of trade receivables year-end
balances, in a company with weak internal controls, over sales and
is: To achieve good internal control, which départment should perform trade receivable functions?
the activities of matching shipping documents with sales orders and &3 Carrying’outa tapositive circularization of receivable balances in
preparing daily sales summaries? respect ofthe year-end balances.
A. Billing B. — Carrying out a negative circularization of receivables in respect
B. Shipping of year-end balances.
C. Crediti===== i ‘Cree Confirmingr teceivable balances by agreeing to sales invoices,
D. Sales order " authorized delivery receipts and customer orders.
f % D. Confirming receivables balances by verifying subsequent
16. Which of the following procedures most likely would not be an payments after year-end,
internal control designed to reduce the risk of errors in the billing
process? 23. Tracing shipping dicienenhy to pre-numbered sales invoice provides
A. Comparing control totals for shipping’ documents with evidence that:
corresponding totals for sales invoices. ™ No duplicate shipments or billings occurred.

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B. Using computer programmed controls on the pricing and "Shipments to customers were properly invoi
‘\. mathematical accuracy of sales invoices. All goods ordered by customer were shipped.
C. \ Matching shipping documents with approved sales orders All pre-numbered : sales invoices were accounted for.
before invoice preparation.
dD. Reconciling ‘the control totals for sales invoices with the 24. An auditor most likely’ would review an entity’s periodic accounting
accounts receivable subside ledger. for the numerical sequence of shipping documents and invoices to
support management's financial statement assertion of:
17. Which of the following audit nrocatlares would an auditor most A. Existence \
likely perform to test controls relating to management’s assertion B. Rights and obligations
concerning the completeness of sales transactions? C. Valuation and allocation
A: Verify that extensions and footings on the entity’s sales D. Completeness
invoices and monthly customer statements have been
recomputed. 25. Cut-off tests designed to detect credit sales made after the end of
B. Inspect the entity’s reports of prenumbered shipping the year that have been recorded in the current year provide
documents that have been recorded in the sales journal. assurance about management's assertion of:
C.. Compare the invoiced prices on prenumbered sales invoices to A. _ Existence
the entity’s authorized price list. B. Rights and obligations
D. Inquire about the entity’s credit granting policies and the C. Valuation and allocation
consistent application of credit checks. D. Completeness

18. Which of the following internal controls most likely would assure 26. During an audit of the accounts receivable function, you found that
that all billed sales are correctly posted to the accounts receivable the accounts receivable turnover rate had fallen from 7.3 to 4,3 over
ledger? the last three years. What is the most likely cause of the decrease?
A. _ Daily sales summaries are compared to daily postings to the A. Anincrease in the discount offered for early payment
accounts receivable ledger. B. Amore liberal credit policy
B. Each sales invoice is supported by a pre-numbered shipping Cc. Achange form net 30 net 25
document. D. Greater cash sales
C. The accounts receivable ledger is reconciled daily to the control
account in the general ledger. 27. Which of the following most likely would give the most assurance
D. Each shipment on credit is supported by a pre-numbered sales concerning the valuation assertion of accounts receivable?
invoice. Vouching amounts in the subsidiary ledger to details on
shipping documents.
19. Sending accounts receivable confirmation letters to the client’s B. Comparing receivable turnover ratios with industry statistics
customers is consistent with the auditor’s objective of validating for reasonableness.
client’s receivable assertion on: Inquiring about receivables pledged under loan agreements.
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Existence and rights D. _ Assessing the allowance for uncollectible accounts for
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Completeness and valuation reasonableness.

Completeness and rights
Existence and valuation 28. The auditors’ analysis of the clients aged accounts receivable
schedule is consistent with the auditor’s objective of validating
20. Which of the following statements about receivables confirmation is client’s receivable assertion on:
correct? A. — Existence
A. Under positive confirmation, the customer is request to B. Completeness
confirm the accuracy of the balance stated or state in what C. Rights and obligation
respect he disagrees. D. Valuation
B. The receivables’ confirmation has to take place immediately
after the year-end.
C. Receivables’ confirmation letters are sent by the auditor on the
audit firm’s headed notepaper.
D. The receivables’ confirmation provides assurance as to the
valuation of year-end receivable balances.