CHAPTER 6

1. The objective of the ordinary examination by the independent auditor is the expression of an
opinion on
a. the fairness of the financial statements.
b. the accuracy of the financial statements.
c. the accuracy of the annual report.
d. the balance sheet and income statement.

2. Auditors accumulate evidence to

a. defend themselves in the event of a lawsuit.
b. justify the conclusions they have otherwise reached.
c. satisfy the requirements of the Securities Acts of 1933 and 1934.
d. enable them to reach conclusions about the fairness of the financial statements and issue
an appropriate audit report.

3. The factor which distinguishes an error from fraud is

a. materiality.
b. intent.
c. whether it is a dollar amount or a process.
d. whether it is a caused by the auditor or the client.

4. Which of the following is not one of the reasons that auditors provide reasonable, but not
absolute assurance on the financial statements?
a. The auditor commonly examines a sample, rather than the entire population of
transactions.
b. Accounting presentations contain complex estimates which inherently involve uncertainty.
G c. Fraudulently prepared financial statements are often difficult to detect.
d. Auditors believe that reasonable assurance is sufficient in the vast majority of cases.

5. Which of the following is not one of the five broad categories of management assertions, as
classified in SAS 31?
a. General or specific transaction objectives.
b. Existence or occurrence.
c. Valuation or allocation.
d. Presentation and disclosure.

6. Which of the following statements is most correct regarding errors and fraud?
a. An error is unintentional, whereas fraud is intentional.
b. Frauds occur more often than errors in financial statements.
c. Errors are always fraud and frauds are always errors.
d. Auditors have more responsibility for finding fraud than errors.

7. Which of the following “general transaction-related audit objectives” is not part of the valuation
or allocation assertion?
a. Completeness
b. Accuracy
c. Classification
d. Timing

8. If a short-term note payable is included on an accounts payable listing, there is a violation of the
a. completeness objective.
b. existence objective.
c. timing objective.
d. classification objective.

9. An audit process is a well-defined methodology for organizing an audit to ensure that

a. the evidence gathered is both sufficient and competent.
b. all appropriate audit objectives are specified.
 c. all appropriate audit objectives are met.
d. all of the above.

10. Professional skepticism requires auditors to possess a ______ mind.

a. introspective.
b. questioning.
c. intelligent.
d. unbelieving.

11. Fraudulent financial reporting is most likely to be committed by whom?

a. Line employees of the company.
b. Outside members of the company’s board of directors.
c. Company management.
d. The company’s auditors.

12. Analytical procedures are those that

a. evaluate the accuracy of the account balances.
b. assess the overall reasonableness of transactions and balances.
c. review the effectiveness of internal control procedures.
d. analyze the effect of management procedures on the accounting system.

13. Tests of details of balances are specific procedures intended to

a. test for monetary errors in the balances in the financial statements.
b. prove that the accounts with material balances are classified correctly.
c. prove that the trial balance is in balance.
d. identify the details of the internal control system.

14. Which of the following is the auditor least likely to do when aware of an illegal act?
a. Discuss the matter with the client’s legal counsel.
b. Obtain evidence about the potential effect of the illegal act on the financial statements.
c. Contact the local law enforcement officials regarding potential criminal wrongdoing.
d. Consider the impact of the illegal act on the relationship with the company’s management.

15. When engaged to audit the financial statements, it is acceptable for the auditor to prepare
a. the financial statements for client.
b. the footnotes for client.
c. a draft of the financial statements for client.
d. a draft of the financial statements and footnotes for client.

16. Only three management assertions are associated with transaction-related audit objectives.
Which one of the following is not?
a. Existence or occurrence
b. Completeness
c. Valuation or allocation
d. Presentation and disclosure

17. Which of the following statements is not true?

a. Balance-related audit objectives are applied to account balances.
b. Transaction-related audit objectives are applied to classes of transactions.
c. Balance-related audit objectives are applied to the ending balance in balance sheet
accounts.
d. Balance-related audit objectives are applied to both beginning and ending balances in
balance sheet accounts.

18. In testing for cutoff, the objective is to determine

a. whether all of the current period’s transactions are recorded.
b. whether transactions are recorded in the proper period.
c. that no transactions of the current period have been delayed and recorded in a future
period.
d. that no transactions from the prior period are included in the current period’s balances.
19. The detail tie-in objective is not concerned that the details in the account balance
a. agree with related subsidiary ledger amounts.
b. are properly disclosed, in accordance with GAAP.
c. foot to the total in the account balance.
d. agree with the total in the general ledger.

20. The auditor’s evaluation of the likelihood of material employee fraud is normally done initially
as a part of
a. tests of controls.
b. tests of transactions.
c. understanding the entity’s internal control.
d. the assessment of whether to accept the audit engagement.

21. When using the cycle approach to segmenting the audit, the reason for treating capital
acquisition and repayment separately from the acquisition of goods and services is that
a. the transactions are related to financing a company rather than to its operations.
b. most capital acquisition and repayment cycle accounts involve few transactions, but each
is often highly material and therefore should be audited extensively.
c. both a and b above.
d. neither a nor b above.

CHAPTER 7
1. Which of the following “decisions” are relevant to the auditor’s evidence accumulation?

a. Type of audit procedure to use.

b. Nature and amount of items to examine.
c. Timing of audit procedures.
d. All of the above are relevant.

2. Audit procedures are normally performed

a. early in the accounting period being examined.
b. throughout the accounting period being examined, but with emphasis on the transactions
near the end.
c. within one to three months after the close of the accounting period.
d. during all three of the above periods.

3. The third standard of fieldwork requires the auditor to accumulate sufficient competent
evidence to support the opinion issued. Because of the nature of audit evidence, it is
a. unlikely the auditor will be completely convinced that the opinion is correct.
b. likely the auditor will be completely convinced that the opinion is correct.
c. unlikely the auditor will arrive at a conclusion.
d. likely that the auditor would change his/her mind about the opinion if he/she took the time
to gather additional evidence.

4. Which of the following forms of evidence is most reliable?

a. General ledger account balances.
b. Confirmation of A/R balance received from a customer.
c. Internal memo explaining the issuance of a credit memo.
d. Copy of month-end adjusting entries.

5. Evidence obtained directly by the auditor is more competent than information obtained
indirectly. Which of the following is not an example of the auditor’s direct knowledge?
a. Physical examination.
b. Observation.
c. Computation.
 d. Inquiry.

6. When an auditor calculates the gross margin as a percent of sales and compares it with previous
periods, this type of evidence is called
a. physical examination.
b. analytical procedures.
c. observation.
d. inquiry

7. Evidence obtained directly by the auditor will not be reliable if

a. the auditor lacks the qualifications to evaluate the evidence.
b. it is provided by the client’s attorney.
c. the client denies its veracity.
d. it is impossible for the auditor to obtain additional corroboratory evidence.
8. For a given audit procedure, the evidence obtained from a sample of 200 would ordinarily be
a. more sufficient than from a sample of one hundred.
b. less sufficient than from a sample of one hundred.
c. more competent than from a sample of one hundred.
d. less competent than from a sample of one hundred.

9. Auditors routinely examine selected items from a much larger population. Which of the
following methods might an auditor use in selecting the items to examine?
a. Select the items that are largest.
b. Select items randomly.
c. Select items that are most likely to contain misstatements.
d. All of the above are appropriate methods.

10. Which of the following statements regarding the relevance of evidence is correct?
a. To be relevant, evidence must pertain to the question at hand.
b. To be relevant, evidence must be persuasive.
c. To be relevant, evidence must relate to multiple audit objectives.
d. To be relevant, evidence must be evaluated in terms of the general audit objectives.

11. Three common types of confirmations used by auditors are (1) negative confirmations, (2)
positive confirmations with a request for information, (3) positive confirmations with the
information included. If they were placed in the order of their competence, from highest to
lowest, the sequence would be
a. 1, 2, 3.
b. 3, 2, 1.
c. 2, 3, 1.
d. 3, 1, 2.

12. When the auditor examines the client’s documents and records to substantiate the information
on the financial statements, it is commonly referred to as
a. inquiry.
b. confirmation.
c. vouching.
d. physical examination.

13. An example of external documents is

a. employees’ time reports.
b. bank statements.
c. purchase order for company purchases.
d. carbon copies of checks.

14. A document which the auditor receives from the client, but which was prepared by someone
outside the client’s organization, is a(n)
a. confirmation.
b. internal document.
c. external document.
d. inquiry.
15. “Evaluations of financial information made by a study of plausible relationships among
financial and nonfinancial data involving comparisons of recorded amounts to expectations
developed by the auditor” is a definition of
a. analytical procedures.
b. tests of transactions.
c. tests of balances.
d. auditing.

16. Unusual fluctuations occur when

a. significant differences are not expected but do exist.
b. significant differences are expected but do not exist.
c. significant differences are expected and do exist.
d. either a or b is true.

17. When analytical procedures reveal no unusual fluctuations, the implication is that
a. there are no material errors or fraud.
b. there are no material errors.
c. there are no material fraud.
d. the possibility of a material error or fraud is lessened.

18. The auditor is concerned that a client is failing to bill customers for shipments. An audit
procedure that would gather relevant evidence would be to
a. select a sample of duplicate sales invoices and trace each to related shipping documents.
b. trace a sample of shipping documents to related duplicate sales invoices.
c. trace a sample of Sales Journal entries to the Accounts Receivable subsidiary ledger.
d. compare the total of the Schedule of Accounts Receivable with the balance of the
Accounts Receivable account in the general ledger.

19. Which of the following statements is not correct?

a. Analytical procedures are used to isolate accounts or transactions that should be
investigated more extensively.
b. For certain immaterial accounts, analytical procedures may be the only evidence needed.
c. In some instances, other types of evidence may be reduced when analytical procedures
indicate that an account balance appears reasonable.
d. Analytical procedures use comparisons and relationships to determine which account
balances may be in error.

20. Which of the following statements is correct with respect to the costs involved in obtaining
audit evidence?
a. Cost of obtaining evidence is a valid reason for excluding that evidence from the audit.
b. Physical examination and confirmation are the most expensive types of audit evidence.
c. The least expensive type of evidence is analytical procedures.
d. Each of the above is correct.

CHAPTER 8
1. Which of the following is not one of the three main reasons why the auditor should properly
plan engagements?
a. To enable proper on-the-job training of employees.
b. To enable the auditor to obtain sufficient competent evidence.
c. To avoid misunderstandings with the client.
d. To help keep audit costs reasonable.

2. A measure of how willing the auditor is to accept that the financial statements may be
materially misstated after the audit is completed and an unqualified opinion has been issued is
the
a. inherent risk.
 b. acceptable audit risk.
c. statistical risk.
d. financial risk.

3. A measure of the auditor’s assessment of the likelihood that there are material misstatements in
an account before considering the effectiveness of the client’s internal control is
a. control risk.
b. acceptable audit risk.
c. statistical risk.
d. inherent risk.

4. The auditor is likely to accumulate more evidence when the audit is for a company
a. whose stock is publicly held.
b. which has extensive indebtedness.
c. which is to be sold in the near future.
d. All three of the above.

5. Which of the following is not typically included in initial audit planning?

a. Client acceptance/continuation decisions.
b. Determination of the purpose of the audit.
c. Schedule engagement staff and audit specialists.
d. Perform preliminary analytical procedures.

6. Most auditors assess inherent risk as high for related parties and related-party transactions
because
a. of the accounting disclosure requirement.
b. of the lack of independence between the parties.
c. both a and b.
d. it is required by generally accepted accounting principles.

7. Which of the following is not correct regarding the communications between successor and
predecessor auditors?
a. The burden of initiating the communication rests with the predecessor auditor.
b. The burden of initiating the communication rests with the successor auditor.
c. The predecessor auditor must receive their former client’s permission prior to divulging
information to the successor auditor
d. The predecessor auditor may choose to provide a limited response to a successor auditor.

8. Which of the following is not a document or record that should be examined early in the
engagement?
a. Management letter.
b. Corporate charter and bylaws.
c. Contracts.
d. Minutes of board of directors’ and stockholders’ meetings.

CHAPTER 9
1. If it is probable that the judgment of a reasonable person would have been changed or
influenced by the omission or misstatement of information, then that information is, by
definition of FASB Statement No. 2,
a. material.
b. insignificant.
c. significant.
d. relevant.

2. The preliminary judgment about materiality is the amount by which the auditor
believes the statements could be misstated and still not affect the decisions of reasonable users.
 a. minimum
b. maximum
c. mean average
d. median average

3. When auditors allocate the preliminary judgment about materiality to account balances, the
materiality allocated to any given account balance is referred to in SAS No. 39 as
a. the materiality range.
b. the error range.
c. tolerable materiality.
d. tolerable misstatement.

4. Why do auditors establish a preliminary judgment about materiality?

a. To help the auditor plan the appropriate evidence to accumulate.
b. So that the client can know what records to make available to the auditor.
c. To determine what level of staffing (i.e., work experience) is required for the audit.
d. None of the above.

5. If an auditor establishes a relatively low level for materiality, then the auditor will
a. accumulate more evidence than if a higher level had been set.
b. accumulate less evidence than if a higher level had been set.
c. accumulate approximately the same evidence as would be the case were a higher level set.
d. accumulate an undetermined amount of evidence.

6. After the preliminary judgment about materiality has been established, auditors may
a. not adjust it.
b. adjust it downward only.
c. adjust it upward only.
d. adjust it either downward or upward.

7. In an audit area that has a higher inherent risk, it would be prudent to

a. increase the amount of audit evidence gathered.
b. assign more experienced staff to that area.
c. review the completed audit files more thoroughly.
d. do all of the above.

8. Which of the following is least likely to be appropriate as the basis for determining the
preliminary judgment about materiality in the audit of a set of financial statements?
a. Net income before taxes.
b. Current assets.
c. Owners’ equity.
d. Inventory.

9. Which of the following might not be a signal of a lack of integrity in management?

a. Prior criminal conviction of an assembly line foreman.
b. Frequent turnover of key internal audit personnel.
c. Frequent disagreements with previous auditors.
d. Frequent turnover of key financial personnel.

10. Which of the following qualitative factors may significantly influence whether an item is
deemed to be material?
a. Misstatements that are otherwise minor may be material if there are possible consequences
arising from contractual obligations.
b. Misstatements that are otherwise immaterial may be material if they affect a trend in
earnings.
c. Amounts involving fraud are usually considered more important than unintentional errors
of equal dollar amounts.
d. All of the above may influence materiality.
11. Auditors generally allocate the preliminary judgment about materiality to
a. the balance sheet only.
b. the income statement only.
c. the income statement and balance sheet.
d. the statement of cash flows.

12. Which of the following statements regarding inherent risk is correct?

a. The inherent risk assigned in the audit risk model is unaffected by the auditor’s experience
with client’s organization.
b. Most auditors set a low inherent risk in the first year of an audit and increase it if
experience shows that it was incorrect.
c. Most auditors set a high inherent risk in the first year of an audit and reduce it in
subsequent years as they gain experience, even when there is inherent risk.
d. The inherent risk assigned in the audit risk model is dependent upon the strengths in
client’s internal control system.

13. Auditors begin their assessments of inherent risk during the planning phase. Which of the
following would not be a topic of the planning phase that would also help to assess inherent
risk?
a. Obtaining client’s agreement on the engagement letter.
b. Obtaining knowledge about the client’s business and industry.
c. Touring the client’s plant and offices.
d. Identifying related parties.

CHAPTER 10
1. Which of the following parties is responsible for establishing an entity’s internal controls?
a. Management.
c. Auditors.
b. Management and auditors.
d. Committee of Sponsoring Organizations.

2. Which of the following is not one of the three primary objectives of effective internal control?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations
c. Compliance with laws and regulations
d. Each of the above is a primary objective of effective internal control.

3. (Public) The PCAOB states that reasonable assurance allows for

a. a nominal likelihood of ineffective internal controls.
b. a remote likelihood that material misstatements will not be prevented or detected by
internal control.
c. a likelihood that material misstatements will not be prevented or detected by
internal control.
d. a high likelihood that material misstatements will not be prevented or detected by
internal control.

4. Internal controls can never be considered as absolutely effective because

a. their effectiveness is limited by the competency and dependability of employees.
b. controls always have inherent weaknesses that can be exploited.
c. controls are designed to prevent and detect only material misstatements.
d. none of the above.

5. A major control available in a small company, which might not be feasible in a large company,
is
a. a wider segregation of duties.
b. a voucher system.
 c. fewer transactions to process.
d. the owner-manager’s personal interest and close relationship with personnel.

6. An act of two or more employees to steal assets or misstate records is frequently referred to as
a. collusion.
b. a material weakness.
c. a control deficiency.
d. Any of the above.

7. When the auditor attempts to understand the operation of the accounting system by tracing a
few transactions through the accounting system, this is referred to as
a. tracing.
b. vouching.
c. a walk-through.
d. tests of controls.

8. (SOX) Which section of the Sarbanes-Oxley Act requires management to issue an internal control
report?
a. 202
b. 203
c. 404
d. 408

9. (SOX) Sarbanes-Oxley requires management to issue an internal control report that includes two
specific items. Which of the following is one of these two requirements?
a. A statement that management is responsible for establishing and maintaining an
adequate internal control structure and procedures for financial reporting.
b. A statement that management and the board of directors are responsible for establishing
and maintaining an adequate internal control structure and procedures for financial
reporting.
c. A statement that management, the board of directors, and the external auditors for
establishing and maintaining an adequate internal control structure and procedures for
financial reporting.
d. None of the above is correct.

10. (Public) When management is evaluating the design of internal control, management evaluates whether
the control can do all but which of the following?
a. Prevent material misstatements.
b. Detect material misstatements.
c. Correct material misstatements.
d. None of the above is correct.

11. (Public) Internal control reports issued by public companies must identify the framework used to
evaluate the effectiveness of internal control. Which of the following is the most common
framework in the U.S.?
a. Effective Internal Control Framework - AICPA
b. Internal Control - Integrated Framework - COSO
c. Enterprise Internal Control - COSO
d. There is no single common framework used in the U.S.

12. (Public) Auditor’s tests of operating effectiveness of internal controls might include which of the
following types of procedures?
a. Inspection of relevant documentation
b. Inquiries of personnel
c. Reperformance of the application of controls
d. All of the above

13. With which one of management’s concerns with respect to implementing internal controls is the
auditor primarily concerned?
a. Efficiency of operations.
 b. Reliability of financial reporting.
c. Effectiveness of operations.
d. Compliance with applicable laws and regulations.

14. Which of the following activities would be least likely to strengthen a company’s internal
control?
a. Separating accounting from other financial operations.
b. Maintaining insurance for fire and theft.
c. Fixing responsibility for the performance of employee duties.
d. Carefully selecting and training employees.
15. (Public) Management must disclose material weaknesses in internal control
a. whenever the weakness is deemed significant to a single class of transactions.
b. whenever the weakness is significant to overall financial reporting objectives.
c. even if just one weakness is found.
d. only if the auditor identifies the weakness as significant.

16. When auditing a nonpublic company, the auditor should obtain an understanding of internal
control sufficient
a. to provide reasonable protection against client fraud and defalcations by client employees.
b. to assess control risk.
c. to provide a basis for constructive suggestions to the client for improving the accounting
system.
d. to provide a method for safeguarding assets, checking the accuracy and reliability of
accounting data, promoting operational efficiency, and encouraging adherence to
prescribed managerial policies.

17. Which of the following audit tests would be regarded as a test of a control?
a. Tests of the specific items making up the balance in a given general ledger account.
b. Tests of the inventory pricing to vendors’ invoices.
c. Tests of the signatures on canceled checks to management’s authorizations.
d. Tests of the additions to property, plant, and equipment by physical inspections.

18. During which part of an audit examination is the preparation of flowcharts most appropriate?
a. When performing preliminary analytical procedures.
b. When performing tests of controls.
c. When evaluating the system of administrative control.
d. When reviewing the system of internal control.

19. The ______ consists of the actions, policies, and procedures that reflect the overall attitudes of
top management.
a. control activities.
b. management philosophy.
c. control environment.
d. monitoring function.

CHAPTER 13
1. A listing of all the things which the auditor will do to gather sufficient, competent evidence is
the
a. audit plan.
b. audit program.
c. audit procedure.
d. audit risk model.

2. Shown below (1 through 5) are the five types of tests which auditors use to determine whether
financial statements are fairly stated. Which three are substantive tests?
1. procedures to obtain an understanding of internal control
 2. tests of controls
3. tests of transactions
4. analytical procedures
5. tests of balances
a. 1, 2, and 3.
b. 3, 4, and 5.
c. 2, 3, and 5.
d. 2, 3, and 4.

3. For efficiency, tests of controls are frequently done at the same time as
a. analytical procedures.
b. compliance tests.
c. substantive tests of transactions.
d. substantive tests of balances.

4. In which stage(s) of an audit can analytical procedures be performed?

a. In the planning stage.
b. In conjunction with tests of transactions and tests of details of balances.
c. In the completion stage.
d. During all three stages.

5. The purpose of tests of controls is to provide reasonable assurance that the

a. accounting treatment of transactions and balances is valid and proper.
b. accounting control procedures are functioning as intended.
c. entity has complied with disclosure requirements of generally accepted accounting
principles.
d. entity has complied with requirements of quality control.

6. In the context of an audit of financial statements, substantive tests are audit procedures that
a. may be eliminated under certain conditions.
b. are designed to discover significant subsequent events.
c. may be either tests of transactions, direct tests of financial balances, or analytical
procedures.
d. will increase proportionately with the auditor’s reliance on internal control.

CHAPTER 14
1. With the exception of cash sales, every transaction in the sales and collection cycle ultimately is
included in which account(s)?
a. Cash.
b. Accounts receivable.
c. Allowance for doubtful accounts.
d. b or c.

2. Which of the following is not one of the five classes of transactions included in the sales and
collection cycle?
a. Sales returns and allowances.
b. Charge-off of uncollectible accounts.
c. Bad debt expense.
d. Depreciation expense—store equipment.

3. What event initiates a transaction in the sales and collection cycle?

a. Receipt of cash.
b. Delivery of product to a customer.
c. Identification of a new customer.
d. Customer request for goods.
4. What critical event must take place before goods can be shipped?
a. Determination of correct delivery address.
b. Credit approval.
c. Receipt of cash.
d. Receipt of purchase order from the customer.

5. Before goods are shipped on account, a properly authorized person must

a. prepare the sales invoice.
b. approve the journal entry.
c. approve credit.
d. verify that the unit price is accurate.

6. A document prepared to initiate shipment of the goods sold is the

a. sales order.
b. bill of lading.
c. sales invoice.
d. customer order.

7. The document used to indicate to the customer the amount of a sale and payment due date is the
a. sales invoice.
b. bill of lading.
c. purchase order.
d. sales order.

8. Which of the following is not a business function within the “Sales” class of transactions?
a. Processing customer orders.
b. Granting credit.
c. Processing and recording sales returns and allowances.
d. Shipping goods.
9. The total of the individual account balances in the accounts receivable master file equals the
a. total sales for the period.
b. balance of the sales account in the general ledger.
c. total sales less the total cash received for the period.
d. balance of the accounts receivable account in the general ledger.

10. A listing of the amount owed by each customer which shows how long each component part has
been due is the
a. trial balance.
b. working trial balance.
c. accounts receivable trial balance.
d. aged accounts receivable trial balance.

11. A document sent to each customer showing his or her beginning accounts receivable balance
and the amount and date of each sale, cash payment received, credit memo issued, and the
ending balance is the
a. accounts receivable subsidiary ledger.
b. monthly statement.
c. remittance advice.
d. sales invoice.

12. The document which accompanies the customer’s payment is the

a. credit memo.
b. remittance advice.
c. sales invoice.
d. monthly statement.

13. The document which supports reductions in accounts receivable is the

a. bill of lading.
b. sales invoice.
c. credit memo.
 d. monthly statement.

14. A document that initiates shipment of goods and indicates the description of the merchandise,
the quantity shipped, and customer name and address is the
a. Bill of lading.
b. Sales invoice.
c. Picking ticket.
d. None of the above.

15. When designing audit procedures, the direction of tests is a crucial step in satisfying the
a. valuation objective.
b. cutoff objective.
c. completeness objective.
d. classification objective.

16. Which of the following documents is not commonly associated with the “cash receipts” class of
transactions?
a. Remittance advice.
b. Sales order.
c. Prelisting of cash receipts.
d. Cash receipts journal or listing.

17. The process which postpones entries for the collection of receivables to conceal an existing cash
shortage is referred to as
a. kiting.
b. lapping.
c. computer fraud.
d. cooking the books.

18. When sales invoices are automatically calculated and posted by a computer, the auditor may be
able to reduce substantive tests of transactions for which, if any, objective?
a. Accuracy.
b. Completeness.
c. Existence.
d. None of the above.

CHAPTER 16
1. Which of the following is not a balance-related audit objective evaluated in the audit of
accounts receivable?
a. Timing.
b. Realizable value.
c. Completeness.
d. Accuracy.

2. The two primary classes of transactions in the sales and collection cycle are
a. sales and sales discounts.
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
balance-related audit objectives?
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
auditor?
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
balance outstanding and by the time the component parts have been outstanding, is the
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,
which would normally include
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
collection cycle. Which of the following is not one of those controls?
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.

8. Cutoff misstatements occur when

a. the auditor mistakenly asks the bank for the end-of-year bank statement instead of the
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
a. be recorded in the period when the merchandise is returned.
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 as
stated on the communication is correct or incorrect is a
a. dunning letter.
b. negative confirmation.
c. bank confirmation.
d. positive confirmation.

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

a. requests the recipient to fill in the amount of the balance.
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.