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Principles of Auditing & Other Assurance Services, 21e (Whittington)
Chapter 11 Accounts Receivable, Notes Receivable, and Revenue
Answer: FALSE
Difficulty: 1 Easy
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the
revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Accounts receivable that are written off should not be turned over to a collection agency.
Answer: FALSE
Difficulty: 1 Easy
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the
revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) An aged trial balance of accounts receivable may provide evidence on the adequacy of the
allowance for uncollectible accounts.
Answer: TRUE
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
1
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
4) Confirmation of accounts receivable by direct communication with the debtor tests the
existence of accounts receivable.
Answer: TRUE
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Confirmation requests should contain a "business reply" envelope addressed to the auditors at
the client's address.
Answer: FALSE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) CPAs use positive accounts receivable confirmation requests more frequently than negative
accounts receivable confirmation requests.
Answer: TRUE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
7) Confirmation of accounts receivable provides absolute assurance that no lapping or other
manipulation affecting accounts receivable is being carried on.
Answer: FALSE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Analytical procedures are used by auditors to gain evidence about the adequacy of the
allowance for uncollectible accounts.
Answer: TRUE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) When it is impossible to confirm accounts receivable, the auditors may be able to satisfy
themselves as to the existence of accounts receivable by alternative procedures.
Answer: TRUE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
10) Material accounts receivable from related parties should be stated separately from other
receivables.
Answer: TRUE
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11) 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.
D) Shipping documents (bills of lading) file.
Answer: C
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) Which of the following is least likely to be used as an alternate procedure for handling
nonreplies to accounts receivable confirmation requests?
A) Examine bills of lading.
B) Physically examine items sold.
C) Examine correspondence.
D) Examine subsequent cash receipts.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
13) 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?
A) Sales.
B) Cash.
C) Inventory.
D) Accounts receivable.
Answer: C
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) Which of the following would be least likely to diminish the validity of evidence obtained
through confirmation of accounts receivable?
A) The confirmation requests are sent on the client's letterhead.
B) The confirmation requests are mailed to customers by the internal auditors.
C) The client's mailroom personnel closely monitor and inspect confirmation requests during
mailing.
D) The return address on the envelope used to send the confirmation request is that of the client.
Answer: A
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
15) 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.
B) The auditors will in general use blank rather than positive confirmation requests.
C) The auditors will be required to confirm accounts as of an interim date (during the year under
audit) and as of year-end.
D) Confirmation will not in general be used as the auditor will rely primarily upon support such
as vendors' invoices, purchase orders and receiving reports.
Answer: A
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) 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 understated at December 31, 20X0.
B) Accounts receivable are overstated 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.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
17) Which of the following is not typically considered to be an alternate procedure for handling
nonreplies to accounts receivable confirmation requests?
A) Examine sales invoices.
B) Trace the balances from accounts receivable ledger to the billing statements.
C) Examine correspondence.
D) Examine any subsequent cash receipts.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18) 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.
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 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.
Answer: C
Difficulty: 3 Hard
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the
revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
19) 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.
Answer: D
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20) Which of the following is a likely procedure to test the adequacy of the allowance for
doubtful accounts?
A) Examine cash receipts received after year-end.
B) Confirm receivables.
C) Examine dates of purchase orders.
D) Foot the receivables lead schedule.
Answer: A
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
21) 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.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) For effective internal control, the billing function should not be performed by the:
A) Sales department.
B) Accounting department.
C) Finance department.
D) Information Processing department.
Answer: A
Difficulty: 2 Medium
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the
revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
23) Which procedure would be of most assistance to an auditor discovering a large credit sale
that has erroneously been recorded twice?
A) Footing the sales journal.
B) Confirming accounts receivable.
C) Tracing the total sales in the sales journal to the general ledger.
D) Observation of the physical inventory count at year-end.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) An audit basically consists of having the auditor form an opinion regarding management's
financial statement assertions. The auditor therefore develops general and specific procedures to
apply to the accounts and transactions. In a particular case, s/he might do this by:
A) Tracing sales invoices to shipping documents to tests the completeness of reported sales.
B) Tracing shipping documents to sales invoices to test the occurrence of reported sales.
C) Tracing sales invoices to shipping documents to test the occurrence of reported sales.
D) Tracing sales invoices to shipping documents to test the completeness of recorded accounts
receivable.
Answer: C
Difficulty: 3 Hard
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
10
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
25) The confirmation of accounts receivable is most closely associated with:
A) Business risk.
B) Detection risk.
C) Inherent risk.
D) Relative risk.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) Analytical procedures performed during an audit indicate that accounts receivable doubled
since the end of the prior year. However, the allowance for doubtful accounts as a percentage of
accounts receivable remained about the same. Which of the following client explanations would
satisfy the auditor?
A) A greater percentage of accounts receivable are listed in the "more than 120 days overdue"
category than in the prior year.
B) Internal control activities over the recording of cash receipts have been improved since the
end of the prior year.
C) The client opened a second retail outlet during the current year and its credit sales
approximately equaled the older outlet.
D) The client tightened its credit policy during the current year and sold considerably less
merchandise to customers with poor credit ratings.
Answer: C
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
11
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
27) After the CPAs have selected particular accounts receivable for confirmation:
A) As a control measure, the CPAs should carefully list the audited values of all of those
accounts before turning the letters over to the client to type and mail.
B) It is important that every account selected that has a material balance ultimately be verified by
confirmation or the application of alternative procedures; immaterial balances never require any
follow-up through alternative procedures.
C) All requests for confirmation should be mailed personally by the auditors at a post office.
D) All differences between confirmation replies and book values should be reconciled by the
CPAs, rather than the client.
Answer: C
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Which of the following manipulations would understate receivables on the financial
statements?
A) Understatement of cash sales.
B) Closing the sales journal prior to year-end.
C) Closing the cash receipts journal prior to year-end.
D) Underestimating the allowance for doubtful accounts.
Answer: B
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
29) You were surprised to note that approximately 95% of returned positive accounts receivable
confirmation requests 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.
C) There are many unrecorded liabilities.
D) The sales journal was held open after year-end.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
30) 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.
Answer: A
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
31) 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.
Answer: C
Difficulty: 3 Hard
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
32) 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.
Answer: B
Difficulty: 3 Hard
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
33) 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.
D) The accounts payable department annually approves the extension of credit to customers.
Answer: C
Difficulty: 3 Hard
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the
revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) 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.
Answer: C
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
35) To obtain the best evidence regarding the completeness of recorded accounts receivable, the
auditors:
A) Trace a sample of the bills of lading to sales invoices.
B) Confirm a sample of accounts payable.
C) Review the aging of accounts receivable.
D) Trace a sample of recorded sales to shipping documents.
Answer: A
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
36) Which of the following generally provides the least evidence regarding the valuation of the
allowance for doubtful accounts?
A) Reviewing an aging of accounts receivable.
B) Examination of cash receipts subsequent to the balance sheet date.
C) Confirming current (0-30 day) year-end accounts receivable.
D) Reviewing credit files for selected account.
Answer: C
Difficulty: 3 Hard
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
37) Which of the following would indicate the need to use positive accounts receivable
confirmation requests?
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.
Answer: D
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) 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.
Answer: B
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
17
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
39) 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.
B) Inspecting the notes is sufficient evidence of existence of the notes.
C) The auditors may evaluate the collectibility of notes by inspecting credit files.
D) Confirmation of notes payable to banks may be accomplished in conjunction with the
confirmation of cash balances.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) To verify that all sales that have been shipped to customers have been recorded, a test of
transactions should be completed on a representative sample drawn from:
A) The sales journal.
B) The billing clerk's file of sales orders.
C) Duplicate copies of sales invoices.
D) The shipping clerk's file of duplicate copies of bills of lading.
Answer: D
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
18
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
41) Auditors may use positive and/or negative forms of confirmation requests for accounts
receivable. Of the following, which combination is it most likely that the auditors will use?
A) The positive form for small balances, and the negative form for large balances.
B) The positive form used for large balances and the negative form for the small balances.
C) The positive form used for trade receivables and the negative form for other receivables.
D) The positive form when controls related to receivables are satisfactory, and the negative form
when controls related to receivables are unsatisfactory.
Answer: B
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) The auditors obtain audit evidence for accounts receivable by using positive or negative
confirmation requests. Under which of the following circumstances might the negative form of
the accounts receivable confirmation be useful?
A) A substantial number of accounts are in disputes.
B) The combination of inherent risk and control risk is high.
C) A low exception rate is expected.
D) The auditors believe that recipients of the requests are unlikely to give them consideration.
Answer: C
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
43) When scheduling the audit work to be performed on an engagement, the auditors should
consider confirming accounts receivable balances at an interim date if:
A) Subsequent collections are to be reviewed.
B) Internal control over receivables is good.
C) Negative confirmation requests are to be used.
D) There is a simultaneous examination of cash and accounts receivable.
Answer: B
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) It is sometimes impossible for the auditors to use normal accounts receivable confirmation
procedures. In such situations, the best alternative procedure the auditors might resort to would
be:
A) Examining subsequent receipts of year-end accounts receivable.
B) Reviewing accounts receivable aging schedules prepared at the balance sheet date and at a
subsequent date.
C) Requesting that management increase the allowance for uncollectible accounts by an amount
equal to some percentage of the balance in those accounts that cannot be confirmed.
D) Applying analytical procedures to accounts receivable and sales on a year-to-year basis.
Answer: A
Difficulty: 3 Hard
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue
and design further audit procedures, including tests of controls and substantive procedures, to
address the risks.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
20
Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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