Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 23, Problem 9RQ
To determine
Identify the reason about most auditors emphasizing on the possibility of a nonexistent deposit in transit being included in the reconciliation and an outstanding check being omitted rather than the omission of a deposit in transit and the inclusion of a nonexistent outstanding check.
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Explain why, in verifying bank reconciliations, most auditorsemphasize the possibility of a nonexistent deposit in transit being included in the reconciliation and an outstanding check being omitted rather than the omission of a depositin transit and the inclusion of a nonexistent outstanding check
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 statement
Explain why auditors usually emphasize the detection of fraud inthe audit of cash receipts. Is this consistent or inconsistent with the auditor’s responsibilityin the audit? Explain.
Chapter 23 Solutions
Auditing And Assurance Services
Ch. 23 - Explain the relationships among the initial...Ch. 23 - Prob. 2RQCh. 23 - Prob. 3RQCh. 23 - Prob. 4RQCh. 23 - Prob. 5RQCh. 23 - Prob. 6RQCh. 23 - Prob. 7RQCh. 23 - Prob. 8RQCh. 23 - Prob. 9RQCh. 23 - Prob. 10RQ
Ch. 23 - Prob. 11RQCh. 23 - Prob. 12RQCh. 23 - Prob. 13RQCh. 23 - Prob. 14RQCh. 23 - Prob. 15.1MCQCh. 23 - Prob. 15.2MCQCh. 23 - Prob. 15.3MCQCh. 23 - Prob. 16.1MCQCh. 23 - Prob. 16.2MCQCh. 23 - Prob. 16.3MCQCh. 23 - Prob. 17.1MCQCh. 23 - Prob. 17.2MCQCh. 23 - Prob. 17.3MCQCh. 23 - Prob. 18DQPCh. 23 - Prob. 19DQPCh. 23 - Prob. 20DQPCh. 23 - Prob. 21DQPCh. 23 - Prob. 22DQPCh. 23 - You are doing the first-year audit of Sherman...Ch. 23 - Prob. 24DQPCh. 23 - Prob. 25DQPCh. 23 - The amount of subjectivity involved in...
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- Why is it more important to search for unrecorded notes payablethan for unrecorded notes receivable? Suggest audit procedures that the auditor can useto uncover unrecorded notes payable.arrow_forwardConfirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been sold to the bank on a recourse basis. True Falsearrow_forward1. Which of the following substantive audit procedures is least likely to be performed by the auditor to gather evidence in support of outstanding checks? a. Confirm directly with bank b. Trace to cash disbursements journal c. Ascertain reason for unusual delay d. Trace items on the bank reconciliation to cutoff bank statementsarrow_forward
- Choose the one correct answer. 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 abovearrow_forwardSummarize common internal controls over cash receipts and cash disbursements. Assess the purpose of a bank confirmation and why bank confirmations are an important piece of audit evidence. What are some errors and frauds that can occur in the revenue cycle? Review the process of confirming accounts receivable balances. Why is it important for auditors to understand revenue recognition rules?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
- Which 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_forwardBank reconciliation is best prepared by the Accountant rather than the Internal Auditor. * TRUE FALSEarrow_forwardWhat is the purpose of a bank confirmation and why are bank confirmations an important piece of audit evidence? What are some errors and frauds that can occur in the revenue cycle?arrow_forward
- Why are receivables and revenue ripe areas for abuse or outright fraud? Income tax rules have been adjusted in recent years to make it easier to hide revenue from credit sales. OSEC rules have been adjusted in recent years to make it easier to hide revenue from credit sales. No real event, such as the receipt of cash, is necessary to record a debit to Accounts Receivable and a credit to Revenue. Generally accepted auditing standards do not allow auditors to scrutinize the detailed records of credit sales.arrow_forwardThe following are deficiencies in internal controls over cash. For each deficiency indicate what substantive audit procedure(s) should be performed to determine whether any material misstatements exist. Consider each deficiency independently of the others. While each deficiency poses potential problems, identify two that would heighten your professional skepticism the most and explain your rationale, The person who opens the mail prepares the deposit when the cashier is not available. If a customer does not submit a remittance advice with a payment, the mail clerk sometimes does not prepare one for the accounts receivable department. Occasionally, the treasurer's department does not cancel the sup- porting documents for cash disbursements. Customer correspondence concerning monthly statements is han- dled by the person who makes the bank deposits. Bank reconciliations are not prepared on a timely basis. When prepared, they are prepared by the person who handles incoming mail.arrow_forwardWhich of the following is most closely related to the relevance of audit evidence?a. Auditors decide to physically inspect investment securities held by a custodian instead of obtaining confirmations from the custodian.b. In addition to confirmations of accounts receivable, auditors perform an analysis of the aging of accounts receivable to evaluate the collectability of accounts receivable.c. In response to less effective internal control, auditors increase the number of customer accounts receivable confirmations mailed compared to that in the prior year.d. Because of a large number of transactions occurring near year-end, auditors decide to confirm a larger number of receivables following year-end instead of during the interim period.arrow_forward
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