1. An auditor confirms a representative number of A/R and investigates respondents exceptions and comments. By this procedure the auditor would be most likely to learn which of the following? a) One of the cashiers has been engaged in lapping.
b) One of the sales clerks has not been preparing charge slips for credit sales to family and friends. c) The EDP control clerk has been removing all sales invoices applicable to his account from the data file. d) The credit manager has misappropriated remittances from customers whose accounts have been written-off.
2. Customers having substantial year-end past due balances fail to reply after second request forms have been mailed directly to them. Which of the following is the most appropriate audit procedure? a) Examine shipping documents.
b) Review collections during the year being examined.
c) Intensify the study of the client's internal control system with respect to receivables. d) Increase the balance in the accounts receivable allowance (contra) account.
3. To determine that sales transactions have been recorded in the proper accounting period, the auditor performs a cut-off review. Which of the following best describes the overall approach used when performing a cut-off review? a) Ascertain that management has included in the representation letter a statement that transactions have been accounted for in the proper accounting period. b) Confirm year-end transactions with regular customers.
c) Examine cash receipts in the subsequent period.
d) Analyze transactions occurring within a few days before and after year-end.
4. The confirmation of the client's trade accounts receivable is a means of obtaining evidential matter and is specifically considered to be generally accepted auditing a) Principle.
5. Approximately 95% of returned accounts receivable confirmations indicated that the customer owed a smaller balance than the amount confirmed. This might be explained by the fact that a) The cash receipts journal was held open after year-end.
b) There is a large number of unrecorded liabilities.
c) The sales journal was closed prior to year end.
d) The sales journal was held open after year-end.
6. Which of the following is not a principal objective of the auditor in the examination of revenues? a) To verify cash deposited during the year.
b) To evaluate internal control, with particular emphasis on the use of accrual accounting to record revenue. c) To verify that earned revenue has been recorded, and recorded revenue has been earned. d) To identify and interpret significant trends and variations in the amounts of various categories of revenue.
7. Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date? a) Compare shipping documents with sales records.
b) Apply gross profit rates to inventory disposed of during the period. c) Trace payments received subsequent to the balance sheet date. d) Send accounts receivable confirmation requests.
8. If accounts receivable turned over 7.1 times in 1979 as compared to only 5.6 times in 1980, it is possible that there were a) Unrecorded credit sales in 1980.
b) Unrecorded cash receipts in 1979.
c) More thorough credit investigations made by the company late in 1979. d) Fictitious sales in 1980.
9. Lapping would most likely be detected by
a) Examination of canceled checks clearing in the bank cut-off period. b) Confirming year-end bank balances.
c) Preparing a schedule of interbank transfers.
d) Investigating responses to accounts receivable confirmations.
10. When there are a large number of relatively small account balances, negative confirmation of A/R is feasible if I/C is a) Strong, and the individuals receiving the confirmation requests are unlikely to give them adequate consideration. b) Weak, and the...