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Multiple Choice Questions -Theory

1. The purpose of test of controls over billing is to determine whether

A. billed goods have been shipped
B. shipments are billed
C. billing department personnel are competent
D. credit is approved before goods are shipped

2. Proper authorization of write-offs of uncollectibles should be approved in which of the

following department?
A.Accounts Receivable
C.Accounts Payable

3. The purpose of tests of controls over shipping is to determine whether

A.Billed goods have been shipped
B.Shipments are billed
C.Shipping department personnel are competent
D.Credit is approved before goods are shipped

4. Which of the following might be detected by an auditor's review of the client's sales cut-off?
A.Excessive goods returned for credit
B.Unrecorded sales discount
C.Lapping of year-ends accounts receivable
D.Inflated sales for the year

5. An auditor most likely would review an entity's periodic accounting for numerical sequence of
shipping documents and invoices to support management's financial statement assertion of
A.Existence or occurrence
C.Right and obligation

6. An inappropriate audiy objective relative to accounts receivable is to determine that

A.The accounts exist and are properly valued
B.The client has rights in the receivable
C.The accounts represent the complete transaction process
D.The accounts are collected by the balance sheet date
7. All of the following are examples of substantive tests to verify valuation of net accounts
receivable except the
A.Recomputation if allowance for bad debts
B.Inspection of accounts for current versus non-current status in the statement of financial
C.Inspection of aging schedule and credit records of past due accounts
D.Comparison of tge allowance for bad debts with past records
8.Confirmation,which is a specific type of inquiry,is the process of obtaining a representation of
information or of an existing condition directly from a third party. Two assertion for which
confirmation of accounts receivable balances provides primary evidence are
A.Completeness and valuation
B.Rights and obligation existence
C.Valuation and rights and obligations
D.Existence and completeness

9. An auditor who has confirmed accounts receivable may discover that the sales journal was
held open past year-end if
A.Positive confirmations sent to debtor are not returned
B.Negative confirmations sent to debtors are not returned
l C.Most of the returned negative confirmations indicate that the debtor owes larger balance that
the amount being confirmed
D.Most of the returned positve confirmations indicate that the debtor owes a smaller balance
that the amount being confirmed.

10. The auditor finds situation in which one person has the ability to collect receivables,make
deposits,issue credit memos and record receipt if payments. The auditor suspects the individual
may be stealing from cash receipts. Which of the following audit procedures would be most
effective in discovering fraud in this scenario?
A.Send positive confirmations to all random selection of customers
B.Send negative confirmations to all outstanding accounts receivable customers
C.Perform a detailed review of debits to customer discounts,sales returns, or other debit
accounts excluding cash posted to the cash receipts
D.Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in
the cash receipta journal

11. The positive request form of accounts receivable confirmation may be used when the

Combined Assessed Level of Inherent and Control Risk is Individual Account Receivable Balance are
A. L o w L a r g e
B. L o w S m a l l
C. H i g h S m a l l
D. H i g h L a r g e

12. The negative request form of accounts receivable confirmation may be used whan the
Combined Assessed Level of Inherent and Control Risks Number of Small Balances Is Consideration by the Recipient
A . L o w M a n y L i k e l y
B . L o w F e w U n l i k e l y
C . H i g h F e w L i k e l y
D . H i g h M a n y L i k e l y

13. Which of the following is the greatest drawback of uaing the subsequent collections
evidenced only by a deposit slip as an alternative procedure when responces to positive accounts
receivable confirmation are not received?
A.Checking of subsequent collections can never be used as an alternative auditing procedure
B. By examininy a deposit slip only,the auditor does not know whther the payment is for the
receivable at the balance sheet date or subsequent transaction
C.A depositor slip is not received directly by the auditor
D.A customer may not have made a payment in a timely basis.

14. Confirmation of accounts receivable is generally accepted auditing procedure. The

presumption that an auditor will confirm accounts receivable is not overcome if
A.Based on a prior year's audit experience response rates will be inadequate
B.Based in experience with similar engagements, responses are expected to be unreliable
C.The accounts receivable are immaterial
D.The combined assessed level of inherent and control risk is high

15.Which of the following procedures would an auditor most likely perform for year-end
accounts receivable confirmations when the auditor did not receive repkies ti second request?
A.Review the cash receipts journal for the month prior to year-end
B.Intensify the study of internal control concerning revenue cycle
C.Increased the assessed level of detection risk for existence assertion
D.Inspect the shipping records documenting the merchandise sold to the debtors

16.An auditor should perform alternative procedures to substantiate the existence of accounts
receivable when
A.No reply to a positive confirmation request is received
B.No reply to a negative confirmation request is received
C.Collectibility of the receivables is in doubt
D.Pledging of the receivables is probable

17.An auditor's purpose in reviewing credit ratings of customers with deliquent accounts
receivable most likely is to obtain evidence concerning management's assertion about
A.Valuation or allocation
B.Presentation and disclosure
C.Existence and occurence
D.Rights and obligations
18. An aged trial balance of accounts receivable is usually used by the auditor to
A.Verify the validity of recorded receivables
B.Ensure that all accounts are promptly credited
C.Evaluate the results of compliance test
D.Evaluate type of provision for bad debt expense

19. In verifying a November 30, 2011 sales cut off date , an auditor would be most cincerned
wuth comparing records of
A.November 2011 cash receipts with December 2011 bank deposits
B.November 2011 purchases with December 2011 shipments
C.November 2011 accounts receivable with November2011 sales
D.November 2011 sales with November 2011 shipping documents

20. To conceal defalcation involving receivables, the auditor would expect an experienced
bookkeeper to charge which of the following accounts
A.Miscellaneous income
B.Petty cash
C.Miscellaneous expense
D.Sales returns