Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 16, Problem 23.1MCQ
To determine
The auditor sends out positive
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Which of the following statements is invalid relating to confirmation of accounts receivable? a. A negative form of confirmation is preferable to use when individual account balances of customers are relatively smallb. A positive confirmation provides more reliable evidence than the negative confirmation because the auditor can perform follow-up procedures if no response is received from the debtorc. An auditor must consider using the negative form of confirmation when there is reason to believe that there may be a substantial number of accounts in dispute or with inaccuracies or irregularitiesd. In negative confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation requeste. None of the above
Which of the following is correct regarding the use of confirmation letters in an audit of financial statements:
a. Blank confirmation letters are usually preferred when the auditor expects an overstatement error in the account balance.
b. A reply from a receivable confirmation letter received from the customer through the client is considered an invalid reply, thus another set of confirmation letter should be sent.
c. A positive confirmation letter is preferred over a negative confirmation letter when the auditor, based on his past experience with the client, expects minimal to zero errors.
d. When an auditor does not receive a reply from a customer for a negative confirmation letter in a considerable period of time, the auditor should send out another set of confirmation letter.
Which of the following most likely would be included with the client’s confirmation letter, when an auditor decided to confirm customers’ account balances rather than individual invoices.?
Select one:
Question 28Answer
a.
A client-prepared letter reminding the customerthat a nonresponse will cause a second request tobe sent.
b.
An auditor-prepared letter explaining that a nonresponse may cause an inference that the accountbalance is correct.
c.
An auditor-prepared letter requesting the customer to supply missing and incorrect informationdirectly to the auditor.
d.
A client-prepared statement of account showingthe details of the customer’s account balance.
Chapter 16 Solutions
Auditing And Assurance Services
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Explain why you agree or disagree with the...Ch. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 10RQ
Ch. 16 - Prob. 11RQCh. 16 - Under what circumstances is it acceptable to...Ch. 16 - Prob. 13RQCh. 16 - Prob. 14RQCh. 16 - Prob. 15RQCh. 16 - Prob. 16RQCh. 16 - Prob. 17RQCh. 16 - Prob. 18RQCh. 16 - Prob. 19RQCh. 16 - Prob. 20.1MCQCh. 16 - Prob. 20.2MCQCh. 16 - Prob. 20.3MCQCh. 16 - The following questions deal with confirmation of...Ch. 16 - Prob. 21.2MCQCh. 16 - Prob. 21.3MCQCh. 16 - Prob. 22.1MCQCh. 16 - Prob. 22.2MCQCh. 16 - Prob. 22.3MCQCh. 16 - Prob. 23.1MCQCh. 16 - Which of the following is least likely to be a...Ch. 16 - The following questions concern auditor...Ch. 16 - Prob. 24DQPCh. 16 - Prob. 25DQPCh. 16 - Prob. 26DQPCh. 16 - The following misstatements are sometimes found in...Ch. 16 - Prob. 28DQPCh. 16 - Prob. 29DQPCh. 16 - Prob. 30DQPCh. 16 - Prob. 31DQPCh. 16 - Prob. 32DQPCh. 16 - Prob. 33DQPCh. 16 - Prob. 34DQPCh. 16 - Prob. 35DQPCh. 16 - Prob. 36DQPCh. 16 - Prob. 38DQPCh. 16 - Prob. 39ICA
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- Read the case. Then answer the questions based on it. BACKGROUND: Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve the same objective. However, these instances are considered few and far between and current trends in auditing indicate that there is an expectation that accounts receivable will be confirmed. Auditors may stratify the population, use haphazard or judgmental sampling, and send positive or negative requests. Jenner & Jenner CPAs are the auditors for the Leno Company. In reviewing the accounts receivable aging, the auditors learn that there is a high number of accounts with balances, there are some very large and very small balances, and many customers' balances consist of multiple invoices. 2. How should the auditors mitigate the risk associated with both very large and…arrow_forwardWhen 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.arrow_forwardWhich of the following most likely would be included with the client’s confirmation letter, when an auditor decided to confirm customers’ account balances rather than individual invoices.? Select one: a. An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the auditor. b. A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent. c. A client-prepared statement of account showing the details of the customer’s account balance. d. An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct.arrow_forward
- the auditor is planning to use accounts payable confirmations when auditing the client's accounts payable. The use of accounts payable confirmations will test which of the following assertions? a. rights and obligations b. existence (only) c. existence and completeness d. cutoffarrow_forwardAs an auditor, you run across some abnormalities in a company’s books. What you find, makes you a bit suspicious, by you do not see any reason that this would be fraud or embezzlement, they are just not following GAAS. You decide to issue an opinion letter – what should you do when issuing the opinion letter? Group of answer choices A. Issue a qualified opinion, which states that you see a specific error B.Issue an adverse opinion, where you point out that their financials are not created according to GAAS C. Report them immediately to the SEC D. Nothing, the letter should stand on it’s ownarrow_forwardChoose the one correct answer Which of the following statements is valid relating to confirmation of accounts receivable? * a. A positive confirmation provides more reliable evidence than the negative confirmation because the auditor can perform follow-up procedures if no response is received from the debtorB. A negative form of confirmation is preferable to use when individual account balances of customers are relatively largec. In positive confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation requestd. An auditor must consider using the negative form of confirmation when there is reason to believe that there may be a substantial number of accounts in dispute or with inaccuracies or irregularitiese. None of the abovearrow_forward
- Confirmation of accounts receivable is a presumptively mandatory audit procedure. In performing this procedure, auditors use positive confirmation requests or negative confirmation requests or a combination of both. Describe three conditions that should exist for the auditors to use the negative form of request.arrow_forwardYour answer is incorrect. During the audit of Millennium Corporation, the audit firm, Tyson CPAs has advised firm management that they plan to confirm a sample of accounts receivable balances with a randomly selected pool of the client's customers. The client has refused permission for the auditors to undertake this procedure, citing customer privacy over balances owed to the firm. At this juncture, what might the auditors decide to do? Ⓒ The auditors are most likely to consider withdrawing from the engagement. If management is uncooperative, it is probably because they are hiding fraud or other material errors. O The auditors are likely to proceed with contacting a sample of accounts receivable customers anyway. As these customers represent third parties, the auditor does not need the client's expressed permission to contact them. O The auditors may attempt perform alternative audit procedures. If they are able to do this, they may be able to offer the same level of assurance in this…arrow_forwardWhich of the following statements is invalid relating to confirmation of accounts receivable? a. A negative form of confirmation is preferable to use when individual account balances of customers are relatively smallb. A positive confirmation provides more reliable evidence than the negative confirmation because the auditor can perform follow-up procedures if no response is received from the debtorc. An auditor must consider using the negative form of confirmation when there is reason to believe that there may be a substantial number of accounts in dispute or with inaccuracies or irregularitiesd. In negative confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation requeste. None of the abovearrow_forward
- When the client’s internal control are good, internal documents are more reliable than external True False Whenever practical and reasonable, the confirmation of accounts receivable is required of CPAs. True False Confirmations are ordinarily not used to verify individual transactions such as sales True False Of the three types of confirmations used by auditors, the most reliable type is the positive conformation with the information to be confirmed included on the form. True False Analytical procedures are required during the planning and completion phases on all financial statements audits. True Falsearrow_forwardDuring the confirmation of accounts receivable, an auditor receives a confirmation via the client’s fax machine. Which of the following actions should the auditor take?a. Not accept the confirmation and select another customer’s balance to confirm.b. Not accept the confirmation and treat it as an exception.c. Accept the confirmation and file it in the working papers.d. Accept the confirmation but verify the source and content through a telephone call to the respondent.arrow_forwardased on an assessment of audit risk, the auditors are concerned with the following two risks: The risk that that the client might be making duplicate payments to vendors. The risk that the client’s accounting clerk might be making unauthorized payments to himself. Required: a. Assuming that the client has a manual accounting system, describe how the auditors can design a test to identify the duplicate payments and unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments.arrow_forward
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