A 6 & 10 Quiz

Tracing copies of sales invoices to shipping documents will provide evidence that all sales were shipped and it also helps prove the management assertion of:

• occurrence

• completeness

• existence

• accuracy, valuation and allocation

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of which management assertion regarding account balances?

• occurrence

• completeness

• existence

• accuracy, valuation and allocation

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

• Scan the sales journal for sequential and unusual entries.

• Examine shipping documents for matching sales invoices.

• Compare accounts receivable ledger to daily sales summaries.

Tracing shipping documents to prenumbered sales invoices provides evidence that:

• shipments to customers were properly billed.

• that sales invoices were complete.

• that shipping documents exist.

• that shipping documents are calculated accurately.

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

• cutoff

• completeness

• existence

• accuracy, valuation and allocation

In auditing accounts receivable, the negative form of confirmation request most likely would be used when:

• recipients are likely to return positive confirmation requests without verifying the accuracy of the information.

• the combined assessed level of inherent and control risk relative to accounts receivable is low.

• a small number of accounts receivable are involved but a relatively large number of errors are expected.

• the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

• The positive confirmation form must always be used to confirm all balances regardless of size.

• A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.

• A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables.

• The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to:

• evaluate internal control over credit sales.

• test the accuracy of recorded credit sales.

• evaluate the allowance for doubtful accounts.

• verify the existence of the recorded receivables.

Which of the following is the best argument against the use of negative accounts receivable confirmation?

• The cost-per-response is excessively high.
  

• There is no way of knowing if the intended recipients received them.

• Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment.

• The inference drawn from receiving no reply may not be correct.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:

• accuracy, valuation, and allocation

• completeness

• existence

• rights and obligations