SU 11 Evidence-Sales/Receivables/Cash Cycle Flashcards
An auditor would encounter the greatest difficulty in detecting the diversion of proceeds from
Scrap sales - provide little documentary evidence to corroborate cash receipts
Confirmation of A/R is necessary when
The assessed level of inherent and control risk is HIGH
In a business recession, the auditor would increase its focus on what account?
ALLOWANCE for DOUBTFUL ACCOUNTS
Accounts receivable TURNOVER is substantially LOWER this year than for the PRIOR year. What can account for this?
There was an improper cutoff of sales at the end of the year
When RMM is assessed low, which procedure is an auditor LEAST LIKELY to perform?
Search for unrecorded cash receipts
What are the conditions for a NEGATIVE confirmation request?
RMM is LOW
The number of SMALL balances is MANY
Consideration by the recipient is LIKELY
An increase in A/R usually indicates:
An INCREASE in sales or LESS stringent credit terms
Tracing sales invoices to corresponding shipping documents provides evidence that
Sales billed to customers were actually shipped
Which set of information does an auditor confirm on ONE form?
Cash in bank and collateral for loans
Auditor reconciles the total of the A/R subsidiary ledger to the general ledger control account. This would enable the auditor to most LIKELY learn that
An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period
Major flaw in confirmation process
The controller mailing the confirmation
A confirmation is signed (requested) by the CLIENT but mailed by the EXTERNAL AUDITOR
On a bank reconciliation, no adjustment is needed for d
Deposits in transit - will be added during the reconciliation
On a bank reconciliation, what is the correct adjustment for checks that were written but NOT mailed yet?
The company still has control of the check and the amount should NOT be deducted from the cash balance
How are service charges handled in a bank reconciliation?
Service charges should be deducted from the balance per books
What procedure would an auditor use to determine unusual sales transactions?
A trend analysis of quarterly sales
To determine understatement of sales an auditor would trace transactions from
Shipping documents to sales invoices; would determine if recorded sales couldn’t be found
What is a consideration in planning a sample for a test of subsequent cash receipts?
Preliminary judgments about materiality levels
The most effective procedure to determine collectibility
of accounts receivable is
Review of the subsequent cash COLLECTIONS
A cutoff test of sales COMPLEMENTS the verification of
Accounts Receivable
If the objective of a test of details is to determine an overstatement of sales, the auditor should compare transactions in
The accounting records with the SOURCE documents
Overstatements result from entries with NO supporting documentation. Take a sample of entries in the sales account and vouch them to the shipping documents
RESTRICTED cash should be recorded as
A NONCURRENT asset
Best evidence regarding the year end bank balance is documented in
The bank RECONCILIATION
To detect the overstatement of SALES, an auditor would trace transactions from
The Sales journal to the SHIPPING Documents
Which procedure would an auditor MOST LIKELY perform when auditing the statement of CASH FLOWS?
Reconcile the amounts included in the statement with the other amounts in the other financial statements
Who authorizes a bank confirmation and who sends the confirmation?
The CLIENT authorized the confirmation and the AUDITOR sends (mails) the confirmation.
Testing bank transfers for the last part of the audit period and the first part of the subsequent period detects:
Cash balances OVERSTATED because of KITING
