Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
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Accounting
1. The auditor spends significant time auditing cash discounts and sales returns because
A. management needs to authorize these transactions.
B. these transactions reduce income.
C. the materiality is higher.
D. the risk of transactions being recorded to conceal stolen cash is higher.
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- Suppose we collected cash from a charge customer and the debit was to Cash and the credit to Sales. How and when would this error be discovered?arrow_forward2. After completing a horizontal and vertical analysis of the Balance Sheet and Income Statement. Increases in cash do not match the companies net income. What type of documentation and information should the auditors request to further evaluate for potential fraud? What might explain this increase to cash in relation to Net Income?arrow_forwardThe official receipt reports a higher amount of cash collected while the corresponding sales invoice being paid reported a lower amount. What possible type of fraud occurred in this case? Group of answer choices a.Not given among the given choices b.Tax fraud c.Lapping d.Abstraction of collectionarrow_forward
- 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.arrow_forwardWhy are auditors usually less concerned about the client’s cashreceipts cutoff than the cutoff for sales? Explain the procedure involved in testing for thecutoff for cash receipts.arrow_forwardWhich of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?a. Examining reported purchase returns that appear too low. b. Examining vendor statements for amounts not reported as purchases. c. Searching for customer-returned goods that were not reported as returns. d. Reviewing bank transfers recorded as cash received from customers.arrow_forward
- 1. The negative form of accounts receivable confirmation request is particularly useful except when a. Individual account balances are relatively large b. Internal control surrounding accounts receivable is considered to be effective c. A large number of small balances are involved d. The auditor has reason to believe the persons receiving the request are likely to give them consideration 2. The starting point for the verification of the balance in the general ledger account is to obtain a. A bank reconciliation from the client b. The client’s cash account from the general ledger c. A cutoff bank statement directly from the bank d. The client’s year-end bank statementarrow_forward1. Although the primary objective of an independent audit is not the discovery of fraud, the auditors in their work on cash take into consideration the high relative associated with this asset. One evidence of this attitude is evidenced by the CPAs alertness on signs of lapping. Define lapping and explain the audit procedures that CPAs might utilize to uncover lapping. 2. What actions should be taken by auditors when the count of cash on hand discloses shortage?arrow_forwardQUESTION 13 (1) A junior auditor said: "Comparing to other accounts, such as property, plant and equipment and accounts receivable, cash account contains less inherent risk. This is because there is no significant valuation issue with cash." Evaluate the statement and justify your answer (2) Use the fraud triangle to explain why revenue recognition is generally considered as having high fraud risk. [arrow_forward
- S1: Bank reconciliation is important because it is an opportunity to check for fraudulent activity and to prevent financial statement errors. S2: Cash set aside for a particular purpose may be classified as current or non-current depending on the purpose for its establishment. S3: A cash short or over account is debited when the petty cash fund proves out short. S4: If there is a bank overdraft, it is necessary to adjust and create a bank overdraft account in the ledger. a. All statements are correct. b. All statements are incorrect. c. Only two statements are correct. d. Only one statement is correct. e. Only one statement is incorrect.arrow_forward4. Which of the following audit procedures is most appropriate to address the occurrence assertion for sales? a. Confirm receivables balances. b. Perform analytical procedures. c. Review collectability. d. Confirm cash deposits in banks.arrow_forwardThe expense cycle offers employees many opportunities to commit fraud in processing cash purchases and disbursements. Buyers are usually easy targets for suppliers who offer large returns if they are willing to transact more. Analytical procedures are a cost-effective tool to identify misstated accounts in the expense cycle. a. Please list some analytical procedures that can be used by the auditor to estimate the possibility of misstatement and explain the significance of the audit.b. Why does a trade payable turnover day analysis provide a more precise analysis of trade payables than the current ratio?c. Why do auditors pay more attention to debt understatement than debt overstatement?d. Please identify the elements of environmental control that are relevant to initiation and recording of purchases?arrow_forward
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