Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 10, Problem 20.3MCQ
To determine
Identify the suggestions based on the findings of the auditor.
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As one of the year-end audit procedures, the auditor instructed the client's personnel to prepare a confirmation request for a bank account that had been closed during the year. After the client's treasurer has signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure?
a. The confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed before the year end.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed.
An auditor discovers that a client’s accounts receivable turnover is substantially lowerfor the current year than for the prior year. This trend may indicate that(1) the client recently tightened its credit-granting policies.(2) employees have stolen inventory just before year-end.(3) fictitious credit sales have been recorded during the year.(4) an employee has been lapping receivables in both years.
When accounts receivable are confirmed at an interim date, auditors need not be concerned witha. Obtaining a summary of receivables transactions from the interim date to the year-end date.b. Obtaining a year-end trial balance of receivables, comparing it to the interim trial balance, and obtaining evidence and explanations for large variations.
c. Sending negative confirmations to all customers as of the year-end date.d. Considering the necessity for some additional confirmations as of the balance sheet date if balances have increased materially
Chapter 10 Solutions
Auditing And Assurance Services
Ch. 10 - Prob. 1RQCh. 10 - Define misappropriation of assets and give two...Ch. 10 - Prob. 3RQCh. 10 - Prob. 4RQCh. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - Prob. 7RQCh. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - Prob. 10RQ
Ch. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - Prob. 13RQCh. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - Prob. 18.1MCQCh. 10 - Prob. 18.2MCQCh. 10 - Prob. 18.3MCQCh. 10 - Prob. 19.1MCQCh. 10 - Prob. 19.2MCQCh. 10 - Prob. 19.3MCQCh. 10 - Prob. 20.1MCQCh. 10 - Prob. 20.2MCQCh. 10 - Prob. 20.3MCQCh. 10 - Prob. 21.1MCQCh. 10 - Prob. 21.2MCQCh. 10 - Prob. 21.3MCQCh. 10 - Prob. 22DQPCh. 10 - Prob. 23DQPCh. 10 - Prob. 24DQPCh. 10 - Prob. 26DQPCh. 10 - Prob. 27DQPCh. 10 - Prob. 28DQPCh. 10 - Prob. 30DQPCh. 10 - Prob. 31DQPCh. 10 - Prob. 32DQPCh. 10 - Prob. 33DQP
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- An auditor's analytical procedures have revealed that the accounts receivable of a client have doubled since the end of the prior year. However, the allowance for doubtful accounts, as a percentage of accounts receivable remained about the same. Which of the following client explanations most likely would satisfy the auditor? a. Credit standards were liberalized in the current year. b. Twice as many accounts receivable were written off in the prior year as compared to this year. c. A greater percentage of accounts were currently listed in the "more than 90 days overdue" category than in the prior year. d. The client opened a second retail outlet in the current year and its credit sales approximately equaled the older, established outlet.arrow_forwardWhich of the following might be detected by auditors’ cutoff review and examination of sales journal entries for several days prior to the balance sheet date?a. Lapping year-end accounts receivable.b. Inflating sales for the year.c. Kiting bank balances.d. Misappropriating merchandise.arrow_forwardFictitious accounting entries are recorded that cause revenue to be overstated by $5 millionfor the year; the accounting manager was trying to make the company’s income look betteron the company’s upcoming loan application. This type of fraud is:a. asset misappropriation.b. fraudulent financial reporting.c. GAAP disordering.d. IFRS misalignment.arrow_forward
- Which of the following would provide an auditor with the most reliable evidence reguarding the existence of accounts receivable? A. A copy of the invoice sent to the customer. B. Acopy of the customer's sales order held by the client. C. An accounts receivable confirmation received by the auditor from the client's customer. D. An aging schedule showing the composition of the year-end-accounts receivable balance.arrow_forwardWhich of the following procedures will an auditor most likely perform for year-endaccounts receivable confirmations when the auditor did not receive replies to secondrequests?(1) Review the cash receipts journal for the month prior to year end.(2) Intensify the study of internal control concerning the revenue cycle.(3) Inspect the shipping records documenting the merchandise sold to the debtors.(4) Increase the assessed level of detection risk for the existence assertion.arrow_forwardWhich of the following procedures provides the most relevant information to determine the adequacy of the allowance for doubtful accounts receivable? A. Confirm the receivables. B. Test the controls over the write-off of accounts receivable to ensure that management approves all write-offs. Ⓒ Analyze the following month's payments on the accounts receivable balances outstanding. D. Analyze the allowance through an aging of receivables and an analysis of current economic data.arrow_forward
- The review of subsequent cash receipts has revealed that several of the trade receivables that were considered doubtful have now been paid. However, the audit procedures have shown that a large debtor that was considered safe at 30 June was unexpectedly declared bankrupt on 20 Julyarrow_forwardWhich of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? O Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. O Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions. O Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.arrow_forwardAs the lead accountant for a small company, you notice that inventory purchases from a certain vendor have increased dramatically over the past few months, whereas purchases from all other vendors have decreased. You suspect that something may not be right and that there may be a fraudulent relationship between someone in your company and the vendor that is getting increased business. question: Which theft act investigative method would you use to investigate your suspicions? state evidences that you to support suspicions.arrow_forward
- The financial records of the Movitz Company show that R. Dennis owes $4,100 on an account receivable. An independent audit is being carried out, and the auditors send a positive confirmation to R. Dennis. What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here?a. Control risk was particularly low for accounts receivable.b. Inherent risk was particularly high for accounts receivable.c. Dennis’s account was not yet due.d. Dennis’s account was not with a related party.arrow_forwardWhich 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.”arrow_forwardKim Company, a CPA firm, conducted an audit for the 2020 financial statements of Erin Corporation. The auditors found that the accounting manager changed the journal entry for estimating bad debt expense to a smaller number to hide the poor results from extending credit to high risk customers. This made income materially higher than it otherwise would have been. This is an example of: Embezzlement Employee fraud Larceny Management fraud O None of the abovearrow_forward
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