deck 7

Question 1

An auditor discovered that a client’s accounts receivable turnover is substantially lower for the current year than for the prior year.
This may indicate that

Answer 1

Fictitious credit sales have been recorded during the year.

Question 2

When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations

Answer 2

Client-prepared statements of account that show the details of the account balances.

Question 3

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

Answer 3

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

Question 4

While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate?

Answer 4

Use more experienced audit team members to perform year-end testing.

Question 5

????most likely would be detected by an auditor’s review of a client’s sales cut-off?

Answer 5

Unrecorded sales at year end.

Question 6

?????most likely would give the most assurance concerning the valuation assertion of accounts receivable?

Answer 6

Assessing the allowance for uncollectible accounts for reasonableness.

Question 7

most likely would cause an auditor to believe that material misstatements may exist in an entity’s financial statements?

Answer 7

Accounts receivable confirmation requests yield significantly fewer responses than expected.

Question 8

in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year’s audit, the auditor most likely would choose

Answer 8

Individual invoices.

Question 9

To obtain assurance that all inventory items in a client’s inventory listing are valid, an auditor most likely would trace

Answer 9

Items in the inventory listing to inventory tags and the auditor’s recorded count sheets

Question 10

Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management’s assertion of

Answer 10

Valuation.

Question 11

the ???? assertion addresses the proper valuation of inventory at net realizable value (at the lower of cost or market). Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management’s assertion of valuation.

Answer 11

valuation

Question 12

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management’s assertions about

Answer 12

Valuation or allocation.

A reduction in the turnover rate, for example, might indicate problems with obsolete inventory.

Question 13

When auditing inventories, an auditor would least likely verify that

Answer 13

All inventory owned by the client is on hand at the time of the count.

Question 14

auditing procedures most likely would provide assurance about a manufacturing entity’s inventory valuation?

Answer 14

Testing the entity’s computation of standard overhead rates.

Question 15

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably

Answer 15

Request that the client schedule the physical inventory count at the end of the year.

Question 16

Inspection of loan agreements to determine whether inventories are pledged is a test for

Answer 16

rights and obligations

Question 17

Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?

Answer 17

Inventory is complete

Question 18

While observing a client’s annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client’s perpetual records.
This situation could be the result of the client’s failure to record

Answer 18

Sales returns.

Question 19

To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an auditor most likely would trace

Answer 19

Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count sheets.

Question 20

The completeness assertion pertains to transactions that have NOT been recorded or are missing. Performing ?????for shipping and receiving enables the auditor to detect late transactions that may not have been recorded in the proper period and may be missing from the current (audit) year.

Answer 20

cut-off procedures

Question 21

????strategies would be most likely to improve the response rate of the confirmations of accounts receivable?

Answer 21

Include a list of items or invoices that constitute the customers’ account balances.
A difficulty commonly encountered by recipients of a confirmation request is the inability to determine what has been included in a given accounts receivable balance. Providing a list of the items or invoices making up the balance will facilitate the customer’s reconciliation efforts and make it easier to respond to a confirmation request.

Question 22

“If you do not report any differences within 15 days, it will be assumed that this statement is correct.”

Answer 22

statements would an auditor most likely add to the negative form of confirmations of accounts receivable to encourage timely consideration by the recipients?