For the control activities to be effective, employees maintaining the accounts receivable subsidiary ledger should not also approve:
Employee overtime Wages
Credit Granted to Customers
Write-Offs of customer accounts
Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded?
The billing department supervisor sends a copy of each approved sales order to the credit department for comparison to the customer's authorized credit limit and current account balance
The accounting department supervisor independantly reconciles the accounts receivable subsidiary ledger to the accounts receivable control account each month
The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers.
The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
Which of the following internal controls would be most likely to deter the lapping of collections from customers?
Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries
Authorization of write-offs of uncollectible accounts by a supervisor independent of the credit approval function
Segregation of duties between receiving cash and posting the accounts receivable ledger.
Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries
Smith Corporation has numerous customers. Acustomer file is maintained and includes a customer record with a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to:
Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.
Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit
Request a printout of all account balances so that they can be individually checked against the respective credit limits.
Request a printout of a sample of account balances so that they can be individually checked against the respective credit limits.
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?
Understating the sales journal
Overstating the accounts receivable control account
Overstating the accounts receivable subsidiary ledger
Understating the cash receipts journal
If accounts receivable turnover (credit sales/ receivables) was 7.1 times in 2013 compared to only 5.6 time in 2014, it is possible that there are:
Unrecorded credit sales in 2014.
Unrecorded cash receipts in 2013.
More thorough credit investigations made by the company late in 2013.
Fictitious Sales in 2014.
If the number of days' sales in accounts receivable (365 days/ receivables turnover) decreases' significantly, which of the following assertions for accounts receivable most likely is violated?
Existence or Occurrence
Rights and obligations
Which of the following is most likely to be detected by an auditor's review of an entity's sales cutoff?
Unrecorded sales for the year
Lapping of year-end accounts receivable
Excessive sales discounts
Unauthorized goods returned for credit
Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because
A majority of recipients usually lack the willingness to respond objectively
Some recipients may report incorrect balances that require extensive follow-up
The auditor cannot infer that all non respondents have verified their account information
Negative confirmations do not produce evidence that is statistically quantifiable
The negative request form of accounts receivable confirmation is useful particularly when
Assessed level of control risk relating to receivables The number of small balances is Consideration by the recipient is
Low, High, Likely
Low, Low, Unlikely
High, low, likely
High, High, Likely
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when
No reply to a positive confirmation request is received
No reply to a negative confirmation request is received
The conductibility of the receivables is in doubt.
Pledging of the receivables is probable
In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of
Valuation and allocation
Rights and Obligations
the tick mark (diamond) most likely indicates that the amount was traced to the:
December cash disbursements journal
Outstanding check list of the applicable bank reconciliation
January cash disbursements journal
Year-end bank confirmations
The tick mark (triangle) most likely indicates that the amount was traced to the
Deposit in transit of the applicable bank reconciliation
December cash receipts journal
January cash receipts journal
An auditor ordinarily sends a standard confirmation request to all banks with which the entity has done business during the year under audit, regardless of the year-end balance. One purpose of the procedure is to
Provide the data necessary to prepare a proof of cash
Request that a cutoff bank statemnt and related checks be sent to the auditor
Detect kiting activities that may otherwise not be discovered
Seek information about loans from the banks
The primary evidence regarding year-end bank balances is documented in the
Standard bank confirmations
Outstanding check listing
Interbank transfer schedule
Bank deposit lead schedule
On receiving the cutoff bank statement, the auditor should vouch
Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal.
Checks dated before year-end listed as outstanding on the year-end bank reconciliation to the cutoff statement
Deposits listed on the cutoff statement to deposits in the cash receipts journal.
Checks dated after year-end to outstanding checks listed on the year-end bank reconciliation and to the cutoff statment
Which of the following controls would most effectively ensure that the proper custody of assets in the investing process is maintained?
Direct access to securities in the safe-deposit box is limited to one corporation rate officer
Personnel who post investment transactions to the general ledger are not permitted to update the investment subsidiary ledger
Purchase and sale of investments are executed on the specific authorization of the board of directors
The record balances in the investment subsidiary ledger a periodically compared with the contents of the safe-deposit box by independent personnel
An auditor testing long-term investments would ordinarily use substantive analytical procedures to ascertain the reasonableness of the:
Existence of unrealized gains or losses in the portfolio
Completeness of recorded investment income
Classification between current and non current portfolios
Valuation of marketable equity securities
To establish the existence and rights of a long-term investment in the common stock of a publicly traded company, an auditor ordinarily performs a security count or:
Relies on the entity's internal controls if the auditor has reasonable assurance that the control activities are being applied as prescribed
Confirms the number of shares owned that are held by an independent custodian
Determines the market price per share at the balance sheet date from published quotations
Confirms the number of shares owned with the issuing company
Which of the following is likely to be the most effective audit procedure for verifying dividends earned on investments in publicly traded equity securities
Trace deposits of dividend checks to the cash receipts book
Reconcile recorded earnings with the dividend earnings reported in the investment broker statement
Compare the amounts received with prior year dividends received
Recompute selected extensions and footings of dividend schedules and compare totals to the general ledger
An auditor would most likely verify the interest earned on bond investments by
Vouching the receipt and deposit of interest checks.
Confirming the bond interest rate with the issuer of the bonds.
Recomputing the interest earned of the basis of face amount, interest rate, and period held.
Testing the controls over cash receipts
The audit firm's valuation specialist would likely be brought in to assist in the audit of fair value measurements at an entity when the following is present:
The entity is a new audit client
Significant uncertainty exists in key inputs to the entity's valuation models
The entity has a financial instrument with a level 2 input
The entity owns a large and diverse portfolio of publicly traded stock
An auditor would be most likely to identify a contingent liability by obtaining a(n):
Accounts payable confirmation
Bank confirmation of the entity's cash balance
Letter from the entity's general legal counsel
List of subsequent cash receipts
An auditor should request that an audited entity send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide:
The opinion of a specialist as to whether loss contingencies are possible, probable, or remote.
A description of litigation, claims, and assessments that have a reasonable possibility of unfavorable outcome.
An objective appraisal of management's policies and procedures adopted for identifying and evaluating legal matters
Corroboration of the information furnished by management concerning litigation, claims, and assessments
An auditor issued an audit report that was dual dated for a subsequent even occurring after the date on which the auditor has obtained sufficient appropriate audit evidence but before issuance of the financial statements. The auditor's responsibility for events occurring subsequent to the date on which the auditor has obtained sufficient appropriate evidence was
limited to the specific event referenced
extended to include all events occurring since the date on which the auditor has obtained sufficient appropriate audit evidence
Extended to subsequent events occurring through the date of issuance of the report
Limited to events occurring up to date of the last subsequent event referenced
Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of any changes in internal control that might affect financial reporting between the end of the reporting period and the date of the auditor's report?
Review a fire insurance settlement during the subsequent period.
Examine relevant internal audit reports issued during the subsequent period.
Inquire of the entity's legal counsel concerning litigation, claims, and assessments arising after year-end
Confirm bank accounts established after year-end
Final analytical procedures are generally intended to:
Provide the auditor with a final, overall, evaluation of the relationships among financial statement balances
Test transactions to corroborate management's financial statement asserstions
Gather evidence concerning account balances that have not yet been investigated
Retest control activities that appeared to be ineffective during the assessment of control risk
Which of the following audit procedures is most likely to assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?
Review compliance with the terms of debt agreements
Review management's plans to dispose of assets
Evaluate management's plans to borrow money or restructure debt
Consider management's plans to reduce or delay expenditures
Auditing standards primarily encourage which of the following conversations about financial reporting?
A conversation with those charged with governance to discuss matters pertaining to financial reporting
A conversation with only management to discuss matters pertaining to financial reporting
A conversation with the head of the entity's internal audit department and those charged with governance to discuss matters pertaining to financial reporting
A conversation in which those charged with governance report on management's views on matters pertaining to financial reporting
Which of the following events occuring after the issuance of a set of financial statements and the accompanying auditor's report would be most likely to cause the auditor to make further inquires about the financial statments
A technological development in the industry that could affect the entity's future ability to continue as a going concern
The entity's sale of a subsidiary that accounts for 30 percent of the entity's consolidated sales
The discovery of information regarding a contingency that existed before the financial statements were issued
The final resolution of a lawsuit explained in a separate paragraph of the auditor's report