CHAPTER 16

Multiple-Choice Questions

1. Which of the following is not a balance-related audit objective evaluated in the audit of
easy accounts receivable?
a a. Timing.
b. Realizable value.
c. Completeness.
d. Accuracy.

2. The two primary classes of transactions in the sales and collection cycle are
easy a. sales and sales discounts.
b b. sales and cash receipts.
c. sales and sales returns.
d. sales and accounts receivable.

3. For most audits, inherent risk for accounts receivable is moderate or low except for which
easy balance-related audit objectives?
d a. Timing and realizable value.
b. Completeness and existence.
c. Existence and accuracy.
d. Realizable value and cutoff.

4. Which of the following types of receivables would not deserve the special attention of the
easy auditor?
d a. Accounts with credit balances.
b. Accounts that have been outstanding for a long time.
c. Receivables from affiliated companies.
d. Accounts where no reply was received to a negative confirmation request.

5. A listing of the balances in the accounts receivable master file at the balance sheet date, by total
easy balance outstanding and by the time the component parts have been outstanding, is the
b a. customer list.
b. aged trial balance.
c. accounts receivable ledger.
d. schedule of accounts receivable.

6. Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure,
easy which would normally include
d a. test footing the total column and the columns depicting the aging.
b. comparing the total of the trial balance with the general ledger accounts receivable
account.
c. tracing a sample of individual balances to supporting documents.
d. all of the above.

7. Auditors are often concerned with three aspects of internal controls related to the sales and
easy collection cycle. Which of the following is not one of those controls?
c a. Controls that detect or prevent defalcations.
b. Controls over cutoff.
c. Controls over inventory acquisitions.
d. Controls related to the allowance for doubtful accounts such as credit approval.

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8. Cutoff misstatements occur when
easy a. the auditor mistakenly asks the bank for the end-of-year bank statement instead of the
d statement which would include the two succeeding weeks.
b. subsequent period transactions are recorded in the current period.
c. current period transactions are recorded in the subsequent period.
d. both b and c above, but not a.

9. Generally accepted accounting principles require that material sales returns and allowances
easy a. be recorded in the period when the merchandise is returned.
c b. be recorded in the period when the credit memo is issued.
c. be matched with related sales.
d. be recorded as a debit to the sales account.

10. Communication addressed to the debtor requesting him or her to confirm whether the balance
easy as stated on the communication is correct or incorrect is a
d a. dunning letter.
b. negative confirmation.
c. bank confirmation.
d. positive confirmation.

11. A type of positive confirmation known as a blank confirmation

easy a. requests the recipient to fill in the amount of the balance.
d b. is considered more reliable than the regular positive confirmation.
c. does not generate as high a response rate as the regular positive confirmation form.
d. has all of the attributes of a, b, and c above.

12. Which of the audit objectives is performed first when doing the tests of details of balances for
medium accounts receivable?
b a. Recorded accounts receivable exist.
b. Accounts receivable in the aged trial balance agree with related master file amounts, and
the total is correctly added and agrees with the general ledger.
c. Accounts receivable are owned.
d. Existing accounts receivable are included.

13. Which of the following is an incorrect combination of balance-related audit objectives for
medium accounts receivable and transaction-related audit objectives for sales and collections?
c a. Existence – existence.
b. Cutoff – timing.
c. Realizable value – timing.
d. Detail tie-in – posting and summarization.

14. Analytical procedures are substantive tests and, if the results of the analytical procedures are
medium favorable, they will
a a. reduce the extent of tests of details of balances.
b. reduce the extent of tests of controls.
c. reduce the tests of transactions.
d. reduce all of the other tests.

15. Tests of details of balances are directed to

medium a. balance sheet accounts for all cycles.
a b. income statement accounts for all cycles.
c. balance sheet accounts for some cycles and income statement accounts for other cycles.
d. all general ledger accounts for all cycles.

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16. The most important test of details of balances for accounts receivable is
medium a. confirmations.
a b. recalculation of the aged receivables and uncollectible accounts.
c. tracing credit memos for returned merchandise to receiving room reports.
d. tracing from shipping documents to journals to the accounts receivable ledger.

17. Most tests of accounts receivable and the allowance for uncollectible accounts are based on
medium a. the general ledger balance of each account.
d b. the results of analytical procedures.
c. the results of confirmations.
d. the aged trial balance.

18. The most important test of details of balances to determine the existence of recorded accounts
medium receivable is
d a. tracing sales entries to shipping documents.
b. tracing the credits in accounts receivable to bank deposits.
c. tracing sales returns entries to credit memos issued and receiving room reports.
d. the confirmation of customers’ balances.

19. If accounts receivable accounts with credit balances are significant, they should be
medium a. written off.
c b. moved to the debit side.
c. reclassified as accounts payable.
d. corrected by making adjusting entries.

20. What audit procedures is generally viewed as the most important test of details of accounts
medium receivable?
b a. Alternative procedures applied to non-confirmed accounts.
b. Confirmation of accounts receivable.
c. Both a and b are equally important.
d. Neither a nor b.

21. Most tests of accounts receivable are based on what schedule, file, or listing?
medium a. Sales master file.
b b. Aged accounts receivable trial balance.
c. Accounts receivable master file.
d. None of the above.

22. An auditor discovers that the client records sales returns and allowances in the accounting
medium period in which they occur, under the assumption of approximately equal offsetting errors at the
c beginning and end of each period.
a. This is acceptable.
b. This is not acceptable.
c. This is acceptable as long as the amounts are not significant.
d. This is not acceptable as long as the amounts are not significant.

23. If the client’s internal control for recording sales returns and allowances is evaluated as
medium ineffective,
a a. a larger sample is needed to verify cutoff.
b. sampling is not appropriate.
c. all sales returns must be traced to supporting documentation.
d. all sales returns must be confirmed with the customer.

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24. A customer mails and records a check to a client for payment of an unpaid account on
medium December 30. The client receives and records the amount on January 2. The records of the two
b organizations will be different on December 31.
a. This is a cutoff misstatement.
b. This is a timing difference.
c. Both a and b.
d. Neither a nor b.

25. The balance-related audit objectives for accounts receivable is most effectively addressed using
medium what type of audit procedure?
c a. Confirmation.
b. Physical examination.
c. Substantive tests of transactions.
d. Any of the above.

26. This year is the first time that, as a normal practice in client’s business, accounts receivable may
medium be pledged, assigned, factored, or sold at discount. The audit procedure which would not
c disclose these practices would be
a. a review of the minutes of the board of directors’ meetings.
b. discussions with the client.
c. confirmation of receivables.
d. examination of correspondence files.

27. Cutoff misstatements can occur for all but which of the following in the sales and collection
medium cycle?
a a. Cash payments.
b. Sales on account.
c. Sales returns and allowances.
d. Cash receipts.

28. Two major audit procedures which were formally required by the AICPA as a result of the
medium McKesson & Robbins case are
c a. reconciliation of cash and confirmation of receivables.
b. reconciliation of cash and physical examination of inventory.
c. confirmation of receivables and physical examination of inventory.
d. confirmation of receivables and communication with client’s external lawyer.

29. When do most companies record sales returns and allowances?

medium a. During the month in which the sale occurs.
b b. During the accounting period in which the return occurs.
c. Whenever the customer contacts the company regarding the credit.
d. Any of the above is correct.

30. A positive confirmation is more reliable evidence than a negative confirmation because
medium a. fewer confirmations can be sent out.
d b. the auditor has a document which can be used in court.
c. the debtor’s lack of response indicates agreement with the stated balance.
d. follow-up procedures can be performed if a response is not received from the debtor.

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31. The advantage of using the negative form of confirmations is that
medium a. larger sample sizes can be used without increasing the costs above what would have been
a required for positive confirmations.
b. customer’s silence proves that the balance is correct.
c. follow-up procedures are scheduled automatically.
d. it is appropriate in all circumstances.

32. Which one of the following circumstances would indicate that negative confirmations should
medium not be used on this engagement?
a a. A significant portion of the total accounts receivable balance is represented by a small
number of accounts with large balances.
b. The internal control over receivables is good.
c. The recipients are mostly businesses rather than individuals.
d. The auditor is unaware of disputed or inaccurate accounts.

33. Which of the following procedures do most auditors perform when auditing the allowance for
medium doubtful accounts?
d a. Examine credit files for select customers.
b. Inquire of the client’s credit manager.
c. Review the client’s correspondence files related to select customers.
d. All of the above.

34. When positive confirmations are used, SAS No. 67 requires follow-up procedures for
medium confirmations not returned by the customer. In such a situation, which of the following would
a not be classified as an alternative procedure?
a. Send a second confirmation request.
b. Examine subsequent cash receipts to determine if the receivable has been paid.
c. Examine shipping documents to verify that the merchandise was shipped.
d. Examine duplicate sales invoice to determine that the merchandise was ordered.

35. What are the possible disadvantages of evaluating the allowance for doubtful accounts by
medium reviewing individual non-current balances?
c a. Current accounts receivable may be ignored.
b. It is difficult to compare results of the current and prior years if such an unstructured
approach is used.
c. Both a and b.
d. None of the above.

36. Which of the following most likely would be detected by an auditor’s review of a client’s sales
medium cutoff?
b a. Excessive sales discounts.
b. Unrecorded sales for the year.
c. Unauthorized goods returned for credit.
d. Lapping of year-end accounts receivable.

37. The use of the positive (as opposed to the negative) form of receivables confirmation is
medium preferred when
b a. internal control surrounding accounts receivable is considered to be effective.
b. there is reason to believe that a substantial number of accounts may be in dispute.
c. a large number of small balances are involved.
d. there is reason to believe a significant portion of the requests will be made.

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38. An auditor should perform alternative procedures to substantiate the existence of accounts
medium receivable when
a 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.

39. How might the auditor go about determining whether a client has limited rights to accounts
medium receivable?
d a. Review minutes from board of directors meetings.
b. Inquiries of the client.
c. Review bank confirmations.
d. Any of the above may be used for this purpose.

40. Confirmation of individual accounts receivable balances directly with debtors will, of itself,
medium normally provide evidence concerning the
c a. collectibility of the balances confirmed.
b. ownership of the balances confirmed.
c. existence of the balances confirmed.
d. internal control over balances confirmed.

41. If the auditor decides to not confirm accounts receivable, the auditor should
medium a. always use alternative procedures to audit the accounts receivable.
c b. do no more audit work.
c. document the reasons for such a decision in the audit files.
d. follow b and c, but not a.

42. The understatement of sales and accounts receivable is best uncovered by

challenging a. confirming receivables.
c b. reviewing the aged trial balance.
c. test of transactions for shipments made but not recorded.
d. reconciling the accounts receivable general ledger account with the schedule of accounts
receivable.

43. Which of the following would not be a part of the approach used in determining the
challenging reasonableness of cutoff?
d a. Decide on the appropriate criteria for cutoff.
b. Evaluate whether the client has established adequate procedures to ensure a reasonable
cutoff.
c. Test whether a reasonable cutoff was obtained.
d. Review client’s December 31 and January 2 entries for cutoff problems.

44. You are reviewing sales to discover cutoff problems. If the client’s policy is to record sales
challenging when title to the merchandise passes to the buyer, then the books and records would contain
a errors if the December 31 entries were for sales recorded
a. before the merchandise was shipped.
b. at the time the merchandise was shipped.
c. several days subsequent to shipment.
d. at a time other than the point at which title passed.

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45. It is easy to test for a cash receipts cutoff error by
challenging a. reconciling the bank statement.
d b. performing a four-column proof-of-cash.
c. observing the counting of cash at the balance sheet date.
d. tracing recorded cash receipts to bank deposits on the bank statement of a different period.

46. Which of the following statements regarding proper disclosure of accounts receivable is not
challenging correct?
d a. Receivables from officers must be segregated from accounts receivable from customers if
the amounts are material.
b. Under SEC requirements, it is necessary to disclose sales and assets for different business
segments separately.
c. Proper aggregation of general ledger balances in the financial statements also requires
combining account balances that are not relevant for external users.
d. All accounts included in the general ledger must be disclosed separately on the financial
statements.

47. The primary purpose of accounts receivable confirmation is to satisfy the

challenging a. existence objective.
d b. existence and cutoff objectives.
c. accuracy and cutoff objectives.
d. existence, accuracy, and cutoff objectives.

48. The most reliable evidence from confirmations is obtained when they are sent
challenging a. as close to the balance sheet date as possible.
a b. at various times throughout the year to different sections of the sample, so that the entire
sample is representative of account balances scattered throughout the year.
c. several months before the year-end, so the auditor will have adequate time to perform
alternate procedures if they are required.
d. at various times throughout the year to the same group in the sample, so that the sample
will not have a time bias.

49. Which of the following is not an important consideration in determining the sample size of
challenging confirmations?
a a. Total annual credit sales.
b. Tolerable misstatement.
c. The types of confirmations being sent; that is, positive or negative.
d. Achieved detection risk from other substantive tests.

50. The following statements relate to the process of selecting items to include in the confirmation
challenging sample. Which of the following is not a true statement?
b a. With most confirmations, some type of stratification is desirable.
b. In most audits, the emphasis should be on sampling equally throughout the population.
c. It is important that the auditor have complete independence in choosing the accounts to be
confirmed.
d. It is important to sample some items from every material stratum of the population.

51. The CPA learns that collections of accounts receivable during the first ten days of January were
challenging entered as debits to cash and credits to accounts receivable as of December 31. The effect
d generally will be to
a. overstate the current ratio with no effect on working capital at December 31.
b. overstate both working capital and the current ratio at December 31.
c. overstate working capital with no effect on the current ratio at December 31.
d. leave both working capital and the current ratio unchanged at December 31.

52. For effective internal control, employees maintaining the accounts receivable subsidiary ledger
challenging should not also approve

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c a. employee overtime wages.
b. credit granted to customers.
c. write-offs of customer accounts.
d. cash disbursements.

53. Returns of positive-confirmation requests for accounts receivable were very poor. As an
challenging alternative procedure, the auditor decided to check subsequent collections. The auditor had
b satisfied himself that the client satisfactorily listed the customer name next to each check listed
on the deposit slip; hence, he decided that for each customer for which a confirmation was not
received that he would add all amounts shown for that customer on each validated deposit slip
for the two months following the balance-sheet date. The major fallacy in the auditor’s
procedure is that
a. checking of subsequent collections is not an accepted alternative auditing procedure for
confirmation of accounts receivable.
b. by looking only at the deposit slip the auditor would not know if the payment was for the
receivable at the balance-sheet date or a subsequent transaction.
c. the deposit slip would not be received directly by the auditor as a confirmation would be.
d. a customer may not have made a payment during the two-month period.

54. Which of the following internal control procedures will most likely prevent the concealment of
challenging a cash shortage resulting from the improper write-off of a trade account receivable?
c a. Write-offs must be approved by the cashier who is in a position to know if the receivables
have, in fact, been collected.
b. Write-offs must be supported by an aging schedule showing that only receivables overdue
several months have been written off.
c. Write-offs must be approved by a responsible officer after review of credit department
recommendations and supporting evidence.
d. Write-offs must be authorized by company field sales employees who are in a position to
determine the financial standing of the customers.

55. The audit working papers often include a client-prepared, aged trial balance of accounts
challenging receivable as of the balance sheet date. This aging is best used by the auditor to
c a. evaluate internal control over credit sales.
b. test the accuracy of recorded charge sales.
c. estimate credit losses.
d. verify the validity of the recorded receivables.

56. When auditors use confirmations for the primary purpose of obtaining evidence related to
challenging accounts receivable, which balance-related audit objectives are ordinarily satisfied?
d a. Existence, completeness, and timing.
b. Existence, timing, and realizable value.
c. Realizable value, accuracy, and cutoff.
d. Existence, accuracy, and cutoff.

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Essay Questions

57. As a result of the McKesson and Robbins legal case, two major audit procedures are formally
easy required by the AICPA. State these two required procedures.

Answer:
The two audit procedures required by the AICPA are the confirmation of accounts
receivable and the physical examination of inventory.

58. Describe the differences between positive and negative confirmations. Which type is more
easy reliable?

Answer:
A positive confirmation requests the recipient to respond regardless of whether the balance
as stated on the confirmation is correct or incorrect. In contrast, a negative confirmation
requests the recipient to respond only if the balance as stated on the confirmation is
incorrect. Positive confirmations are more reliable because the auditor can perform follow-
up procedures if a response is not received from the customer.

59. State the nine specific balance-related audit objectives as applied to accounts receivable.
medium
Answer:
The nine specific balance-related audit objectives as applied to accounts receivable are:
● Accounts receivable in the aged trial balance agree with related master file amounts,
and the total is correctly added and agrees with the general ledger (detail tie-in).
● Accounts receivable on the aged trial balance exist (existence).
● Existing accounts receivable are included in the aged trial balance (completeness).
● Accounts receivable in the trial balance are accurate (accuracy).
● Accounts receivable on the aged trial balance are properly classified (classification).
● Transactions in the sales and collection cycle are recorded in the proper period
(cutoff).
● Accounts receivable is stated at realizable value (realizable value).
● The client has rights to accounts receivable on the aged trial balance (rights).
● Accounts in the sales and collection cycle and related information are properly
presented and disclosed (presentation and disclosure).

60. Discuss three examples of analytical procedures an auditor might perform while auditing the
medium sales and collection cycle. Also discuss the potential misstatement(s) that may be revealed by
each analytical procedure.

Answer:
Analytical procedures applicable to the audit of the sales and collection cycle, and possible
misstatements, include:
ANALYTICAL PROCEDURE POSSIBLE MISSTATEMENT

Compare gross margin percentage with Overstatement or understatement of sales and

previous years’.
Compare sales by month over time.
Compare sales returns and allowances as a
percentage of gross sales with previous
years’.
Compare individual customer balances
accounts receivable.
Overstatement or understatement of sales and
accounts receivable.
Overstatement or understatement of sales returns
and allowances and accounts receivable.
Misstatements in accounts receivable and related

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 over a stated amount with previous years’.
Compare bad debt expense as a percentage
of gross sales with previous years’.
Compare number of days that accounts
receivable are outstanding with previous
years’.
Compare aging categories as a percentage
of accounts receivable with previous
years’.
Compare allowance for uncollectible
accounts as a percentage of accounts
receivable with previous years.
income statement accounts.
Uncollectible accounts receivable that have not
been provided for.
Overstatement or understatement of allowance for
uncollectible accounts and bad debt expense.
Overstatement or understatement of allowance for
uncollectible accounts and bad debt expense.
Overstatement or understatement of allowance for
uncollectible accounts and bad debt expense.

Compare charge-off of uncollectible Overstatement or understatement of allowance for

accounts as a percentage of total accounts uncollectible accounts and bad debt expense.
receivable with previous years.

61. A threefold approach is typically followed when determining the reasonableness of cutoff.
medium Briefly describe the threefold approach.
Answer:
First, auditors should decide on the appropriate cutoff criteria. Second, they must evaluate
whether the client has established adequate procedures to ensure a reasonable cutoff.
Finally, auditors must test whether a reasonable cutoff was obtained.

62. Discuss the alternative procedures an auditor can perform to test the existence objective for
medium accounts receivable when customers do not respond to confirmation requests.

Answer:
For any positive confirmation not returned, the auditor can examine the following to verify
the existence and accuracy of individual sales transactions making up the ending balance
in accounts receivable:
● Subsequent cash receipts—evidence of the receipt of cash after the confirmation date
includes examining remittance advices and entries in the cash receipts records.
● Duplicate sales invoices.
● Shipping documents.
● Correspondence between the customer and the client.

63. Describe how the auditor tests the classification objective for accounts receivable.
medium
Answer:
The classification objective is tested by reviewing the aged trial balance for material
receivables from affiliates, officers, directors, or other related parties. If notes receivable
or accounts that should not be classified as a current asset are included with the regular
accounts, these should also be segregated. Finally, if credit balances in accounts receivable
are significant, it is appropriate to reclassify them as accounts payable.

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64. Discuss the audit procedures performed when testing the detail tie-in objective for accounts
medium receivable, and explain why this objective is ordinarily tested before any other objectives for
accounts receivable.

Answer:
When testing the detail tie-in objective for accounts receivable, the total column and the
columns depicting the aging on the aged trial balance are footed, and the total is compared
to the general ledger. In addition, a sample of individual balances on the aged trial balance
should be traced to supporting documents to verify the customer’s name, balance, and
proper aging. These tests are ordinarily done before any other tests to assure the auditor
that the population being tested agrees with the general ledger and accounts receivable
master file.

65. Assuming the client’s internal controls are adequate, describe how the auditor can verify proper
medium cutoff of sales transactions.

Answer:
Assuming the client’s internal controls are adequate, the auditor can verify proper cutoff
of sales transactions by obtaining the shipping document number for the last shipment
made at the end of the period and comparing this number with current and subsequent
period recorded sales.

66. Describe how the auditor tests the rights objective for accounts receivable.
medium
Answer:
The auditor can test the rights objective for accounts receivable through reviewing the
client’s minutes, discussions with the client, confirmation with banks, the examination of
debt contracts for evidence of accounts receivable pledged as collateral and the
examination of correspondence files to determine whether receivables may have been
pledged as collateral, assigned to someone else, factored, or sold.

67. Discuss the advantages and disadvantages of using negative accounts receivable confirmations
medium rather than positive confirmations.

Answer:
The primary advantage of negative confirmations is that they are less expensive than
positive confirmations because there are no second requests and no follow-up of
nonresponses. The primary disadvantage of negative confirmations is that they are less
reliable than positive confirmations because a nonresponse must be regarded as a correct
response, even though the debtor may have ignored the confirmation request.

68. Discuss the circumstances in which it is acceptable to use negative confirmation requests.
medium
Answer:
It is acceptable to use negative confirmation requests only when all of the following
circumstances are present:
● Accounts receivable is made up of a large number of small accounts.
● Combined assessed control risk and inherent risk is low.
● There is no reason to believe that the recipients of the confirmations are unlikely to
give them consideration.

69. The auditor’s decision regarding the type of accounts receivable confirmation to use involves a
medium continuum, starting with using no confirmations in some circumstances, to using only

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 negatives, to using both positives and negatives, to using only positives. Discuss the primary
factors affecting this decision.

Answer:
The primary factors affecting the decision regarding the type of confirmation to use are the
materiality of total accounts receivable, the number and size of individual accounts,
control risk, inherent risk, the effectiveness of confirmations as audit evidence, and the
availability of other audit evidence.

70. Describe each of the following types of confirmations:

medium ● Positive confirmation
● Blank confirmation form
● Invoice confirmation
● Negative confirmation

Answer:
● Positive confirmations are communications addressed to a debtor requesting the
recipient to confirm whether the balance as stated on the confirmation is correct or
incorrect.
● Blank confirmation forms do not state the amount, but requests the recipient to fill in
the balance or furnish other information.
● Invoice confirmations request a recipient to confirm an individual invoice rather than
an entire balance.
● Negative confirmations are addressed to debtor, but request responses only if the
information is incorrect.

71. When an auditor uses negative confirmations several factors must be considered. What are
challenging those factors?
Answer:
The auditor must carefully consider the following:
● The effectiveness of the client’s internal controls
● Results of substantive tests of transactions
● The appropriateness of analytical procedures as evidence on the fairness of accounts
receivable.
● Whether a large majority of recipients will give careful consideration to the
confirmation.

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Other Objective Answer Format Questions

72. Match five of the terms (a-k) with the definitions provided below (1-5):
medium
a. Accounts receivable balance-related audit objectives
b. Aged trial balance
c. Alternative procedures
d. Blank confirmation form
e. Cutoff misstatements
f. Evidence planning worksheet
g. Negative confirmation
h. Positive confirmation
i. Realizable value of accounts receivable
j. Timing difference in an account receivable confirmation
k. Invoice confirmation

c 1. The follow-up of a positive confirmation not returned by the debtor with the use
of documentation evidence to determine whether the recorded receivable exists
and is collectible.

h 2. A letter, addressed to the debtor, requesting that the recipient indicate directly
on the letter whether the stated account balance is correct or incorrect and, if
incorrect, by what amount.

e 3. Misstatements that take place as a result of current period transactions being

recorded in a subsequent period, or subsequent period transactions being
recorded in the current period.

f 4. A form used to help the auditor decide whether planned detection risk for tests
of details of balances should be low, medium, or high for each balance-related
audit objective.

g 5. A letter, addressed to the debtor, requesting a response only if the recipient

disagrees with the amount of the stated account balance.

73. Tests of details of balances must be designed for each of the balance-related audit objectives.
easy a. True
a b. False

74. Favorable results from analytical procedures reduce the extent to which the auditor needs to test
easy details of balances.
a a. True
b. False

75. Tests of detail tie-in are normally conducted first during the audit of the sales and collections
easy cycle.
a a. True
b. False

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76. The criterion used by most merchandising and manufacturing clients for determining when a
easy sale takes place is whether an order for goods has been received from a customer (customer
b order).
a. True
b. False

77. Acceptable audit risk is normally assessed for the financial statements as a whole and is not
medium usually allocated to various accounts or objectives.
a a. True
b. False

78. Inherent risk for accounts receivable is normally assessed at the objective level, rather than at
medium the account level.
a a. True
b. False

79. The balance-related audit objectives of realizable value, rights, and presentation and disclosure
medium are not affected by assessed control risk.
a a. True
b. False

80. Planned detection risk and planned evidence are directly related; that is, as planned detection
medium risk increases, planned audit evidence for tests of details of balances also increases.
b a. True
b. False

81. Tests of details of balances focus on testing the year-end balances of income statement
medium accounts.
b a. True
b. False

82. Confirmation is the most common test of details of balances for the accuracy of accounts
medium receivable.
a a. True
b. False

83. Blank confirmations are considered less reliable than standard positive confirmations.
medium a. True
b b. False

84. Negative confirmations are less expensive, and less reliable, than positive confirmations.
medium a. True
a b. False

85. It is common to use a combination of positive and negative confirmations by sending the latter
medium to accounts with large balances and the former to those with small balances.
b a. True
b. False

86. Tests of the realizable value balance-related audit objective are for the purpose of evaluating the
medium allowance for doubtful accounts.
a a. True
b. False

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87. The type of confirmation is a major factor affecting sample size when confirming accounts
medium receivable, with negative confirmations normally requiring a larger sample than positive
a confirmations.
a. True
b. False

88. When sending confirmations during most audits of accounts receivable, the emphasis should be
medium on confirming larger and older accounts.
a a. True
b. False

89. When a customer disagrees with the amount shown on an account receivable confirmation, the
medium auditor should not ask the client to reconcile the difference.
b a. True
b. False

90. A high acceptable audit risk will permit a higher planned detection risk than if acceptable audit
challenging risk were low.
a a. True
b. False

91. For most audits, inherent risk for accounts receivable is usually moderate or low except for the
challenging realizable value objective and the cut-off objective.
a a. True
b. False

92. For sales, the existence transaction-relative objective affects the existence balance-related
challenging objective for accounts receivable, but for cash receipts, the existence transaction-relative
a objective affects the completeness balance-related objective for accounts receivable.
a. True
b. False

93. The accounts receivable balance-related audit objective net realizable value is not affected by
challenging assessed control risk for sales or cash receipts.
a a. True
b. False

94. For most audits, a proper cash receipts cutoff is less important than either the sales or the sales
challenging returns and allowances cutoff.
a a. True
b. False

95. Confirmations of accounts receivable are useful for evaluating several accounts receivable
challenging balance-related audit objectives, including existence, rights, and realizable value.
b a. True
b. False

96. When a customer does not return an accounts receivable confirmation, it is acceptable, without
challenging performing alternative procedures, to assume the amount is 100% overstated when generalizing
a from the sample to the population.
a. True
b. False

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