cpa audit review ch11 review 1

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Joens1313
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cpa audit review ch11 review 1
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2014-09-15 01:03:31
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cpa audit review ch11
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cpa audit review ch11 review 1
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  1. The most effective audit procedure for determining the collectibility of an account receivable is the
    Review of the subsequent cash collections.

    Collectibility pertains to the assertion of valuation. It is the principal issue with regard to the adequacy of the allowance for doubtful accounts. The best way to determine collectibility is to learn whether the receivable was subsequently collected. A confirmation provides evidence that a contract exists and that the debtor acknowledges the debt, but the subsequent collection of the receivable is the only means of gaining complete assurance that the amount will be paid.
  2. All of the following are examples of substantive tests to verify the valuation of net accounts receivable except the

    A.Inspection of the aging schedule and credit records of past due accounts.

    B.Comparison of the allowance for bad debts with past records.

    C.Inspection of accounts for current versus noncurrent status in the statement of financial position.

    D.Recomputation of the allowance for bad debts.
    C.Inspection of accounts for current versus noncurrent status in the statement of financial position.

    The inspection of accounts for current versus noncurrent status is a test of management’s assertion relating to statement presentation and disclosure. It is not a test of valuation.
  3. When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent
    Substitution.

    Simultaneous verification of cash and cash equivalents, such as negotiable securities, is common practice to avoid the possibility of conversion of negotiable assets to cash to conceal a cash shortage. The auditor should control and verify all liquid assets at one time.
  4. If the objective of an auditor’s test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from the
    Shipping documents to the sales invoices.

    If a shipment occurred, matching shipping documents to recorded sales would disclose the understatement if no recorded sale could be found.
  5. Assuming a low assessed risk of material misstatement, which of the following audit procedures would be least likely to be performed?

    A.Physical inspection of a sample of inventory.

    B.Confirmation of accounts receivable.

    C.Obtaining a client representation letter.

    D.Search for unrecorded cash receipts.
    D.Search for unrecorded cash receipts.

    GAAS do not specifically require a search for unrecorded cash receipts. Given a low assessed RMM, the auditor might decide to reduce the audit effort devoted to substantive tests of assertions about cash and omit the procedure.
  6. Which of the following audit procedures would an auditor most likely perform to test controls relating to management’s assertion concerning the completeness of sales transactions?

    A.Inspect the entity’s reports of prenumbered shipping documents that have not been recorded in the sales journal.

    B.Verify that extensions and footings on the entity’s sales invoices and monthly customer statements have been recomputed.

    C.Compare the invoiced prices on prenumbered sales invoices to the entity’s authorized price list.

    D.Inquire about the entity’s credit granting policies and the consistent application of credit checks.
    A.Inspect the entity’s reports of prenumbered shipping documents that have not been recorded in the sales journal.

    The completeness assertion relates to whether all transactions that should have been recorded in the accounting records were included. Thus, unrecorded shipping documents would indicate that not all transactions are being properly recorded.
  7. Which of the following is not a principal objective of the auditor in the audit of revenues?

    A.To identify and interpret significant trends and variations in the amounts of various categories of revenue.

    B.To verify cash deposited during the year.

    C.To obtain an understanding of internal control and assess the risks of material misstatement, with particular emphasis on the use of accrual accounting to record revenue.

    D.To verify that earned revenue has been recorded and recorded revenue has been earned.
    B.To verify cash deposited during the year.

    The verification of cash deposits during the year is not part of the audit of revenues. Verification of cash and marketable securities is undertaken as a separate part of the audit program.
  8. Which of the following might be detected by an auditor’s review of the client’s sales cutoff?

    A.Unrecorded sales discounts.

    B.Inflated sales for the year.

    C.Excessive goods returned for credit.

    D.Lapping of year-end accounts receivable.
    B.Inflated sales for the year.

    Sales cutoff tests are designed to detect the client’s manipulation of sales. By examining recorded sales for several days before and after the balance sheet date and comparing them with sales invoices and shipping documents, the auditor may detect the recording of a sale in a period other than that in which title passed.
  9. An auditor is determining whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the
    Shipping document file.

    Matching shipping documents to sales invoices will indicate whether the shipping documents generated the preparation of a sales invoice.

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