TRUE or FALSE3. All allowances to customers for returned or defective merchandise should be supported byserially numbered credit memo signed by an officer or responsible employee having no dutiesrelating to handling cash or the maintenance of customers' ledgers.4. The auditors should perform alternative auditing procedures on all negative confirmation requeststhat are not returned.5. When it is "impossible" to confirm accounts receivable, the auditors can never issue anunqualified oinion, on the client's financial statements.6. Inspection of notes receivable on hand should be performed concurrently with the count of cashand securities to prevent the concealment of a shortage by substitution of cash formisappropriated negotiable instruments, or vice versa.7. A confirmation is considered documentary evidence secured from outside the organization andsent directly to the auditors.8. The auditor needs the client's permission to send out "confirmations"9. A customer's response to a receivable confirmation request may contain restrictive languageconcerning its use. All restrictions would invalidate the reliability of the response as auditevidence.

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Answered: All allowances to customers for…

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle

Section: Chapter Questions

Problem 20MCQ

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Choose the one correct answer 3. If the objective of a test of detail of transaction is to detect overstatement of sales, the auditor’s direction of testing should be from: * A. Cash receipts journal to sales journalB. Sales journal to cash receipt journalC. Source documents to accounting recordsD. Accounting records to source documentsE. None of the above 5. The following statements relate to nature of positive and negative confirmation requests. Which statement is true? *A. In positive confirmation, the customer is requested to reply directly to the client stating whether the balance appearing in the reply portion of the confirmation request is correct or not, and if not, to indicate details of difference.B. In a negative confirmation, the customer is asked to sign a confirmation form showing the account balance and return it in a stamped, addressed enveloped that is enclosedC. A positive confirmation request seeks a response from the debtor as to whether or not the balance is…
Which of the following statements is correct? Select one: a. Account receivable turnover is equal to net credit sales divided by average net accounts receivable. b. Buying aged receivables from businesses and then collects the payments directly from the customers is called Allowance for uncollectible accounts. c. Auto generated document numbers is a fraud preventive method which is more efficient than physical controls. d. If the same people are responsible for a series of related accounting activities is called Segregation of Duties.
Which of the following responses to an accounts receivable confirmation at December 31 would cause an audit team the most concern?a. “This amount was paid on December 30.”b. “We received this shipment on January 2.” c. “These goods were returned for credit on November 15.”d. “The balance does not reflect our sales discount for paying by January 5.”
When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following excepta. Send a second request.b. Do nothing for immaterial balances.c. Examine shipping documents.d. Examine client correspondence files.
The following misstatements are sometimes found in the sales and collection cycle’s account balances:a. Cash received from collections of accounts receivable in the subsequent period is recorded as current period receipts.b. The allowance for uncollectible accounts is inadequate because of the client’s failure to reflect depressed economic conditions in the allowance.c. Several accounts receivable are in dispute as a result of claims of defective merchandised. The pledging of accounts receivable to the bank for a loan is not disclosed in the financial statements.e. Goods shipped and included in the current period sales were returned in the subsequent period.f. Several accounts receivable in the accounts receivable master file are not included in the aged trial balance.g. One account receivable in the accounts receivable master file is included on the aged trial balance twice. h. Long-term interest-bearing notes receivable from affiliated companies are included in accounts receivable.i.…
The following misstatements are sometimes found in the salesand collection cycle’s account balances:1. Several cash receipts were posted to the incorrect customer accounts.2. Several accounts receivable in the accounts receivable master file are not includedin the aged trial balance.3. One account receivable in the accounts receivable master file is included on theaged trial balance twice.4. A shipment made in the subsequent period is recorded as a current period sale.5. The allowance for uncollectible accounts is inadequate because of the client’sfailure to reflect depressed economic conditions in the allowance.6. Several accounts receivable are in dispute as a result of claims of defective merchandise.7. The pledging of accounts receivable to the bank for a loan is not disclosed in thefinancial statements.8. Goods were returned for credit on the last day of the fiscal year but the sales returnwas not recorded until the following fiscal year.9. Long-term interest-bearing notes…
The trial balance of Kelvin does not balance. Which TWO of the following errors could explain this, assuming that Kelvin maintains control accounts for its receivables and payables within the double entry system? (1) The sales day book was undercast by $100.(2) Discounts received were credited to sales revenue account.(3) An opening accrual was omitted from the rent account.(4) The debit side of the cash account was undercast. A (1) and (2)B (2) and (3)C (3) and (4)D (1) and (4) Please give solution with proper explanation
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?a. Understating the sales journal.b. Overstating the accounts receivable control account.c. Overstating the accounts receivable subsidiary ledger.d. Understating the cash receipts journal.
5-Choose an alternative which is not the external source of audit evidence. a. Confirmation from suppliers regarding the amount payable to them. b. Information from the Quality control department about quality control procedure adopted by the company c. Confirmation from Banker regarding the bank balance as per Pass Book d. Confirmation from customers regarding the amount receivables from them.
The following can be appropriately included in an Internal Control Questionnaire for Revenue/Receipt Cycle, except *A. Is the credit department independent of the sales department?B. Are debit or credit memos independently checked against sales invoice data?C. Are accounts receivable periodically reviewed and aged?D. Does the cashier compare the official receipt, deposit slip, and cash receipts journal?E. None of them
Sadaf Oman Co. is using internal control procedures to mitigate the risks to which it is exposed. Listed below are some internal control procedures applicable to Sadaf Oman Co's revenues and receivable system. Match the most appropriate one of the following risks mitigated to the correct internal control procedure stated below. Risks mitigated: (A) Sales staff misappropriate sales receipts then write off bad debts in the general ledger (B) Sales are made to customers who cannot pay (C) Sales are not made to existing customers (D) Sales staff do not communicate with the accounts staff regularly, so the debt uncollected at the end of the period are written off in the ledger by the accounts staff (E) Customer refuses to pay for goods allegedly not received (F) Customer orders are not being fulfilled. (G) Revenues on books are overstated and exceed actual revenues in bank (H) Posting a sale that is beyond the credit limit of the customers ) Company employees steal collections (U) Without…
Provide an appropriate response based on the following scenarios. Assume that the accounting clerk posts a customer’s payment for the wrong amount, giving the customer credit for less than he or she actually paid. How will this error be detected? How might this error have been prevented? Assume that the employee who opens the mail steals a customer payment. How will this theft be detected? How might this theft have been prevented?

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