ACCT 431 CHAPTER 16: Completing the Tests in the Sales and Collection Cycle: Accounts Receivable
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Course
ACCT 431 (ACCT431)
Institution
Pontifical Catholic Of Puerto Rico
Auditing and Assurance Services, 15e (Arens)
Chapter 16 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable
Learning Objective 16-1
1) The two primary classes of transactions in the sales and collection cycle are:
A) sales and sales discounts.
B) sales and cash receipts...
15e arens chapter 16 completing the tests in the sales and collection cycle accounts receivable learning objective 16 1 1 the two primary classes of transactions i
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ACCT 431 CHAPTER 16
Completing the Tests in the Sales and Collection Cycle: Accounts Receivable
Learning Objective 16-1
1) 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.
Answer: B
Terms: Classes of transactions; Sales and collection cycle
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
2) The appropriate and sufficient evidence to be obtained from tests of details must be
decided on an:
A) efficiency basis.
B) effectiveness basis.
C) audit objectives basis.
D) none of the above.
Answer: C
Terms: Tests of details
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
3) Auditors are especially concerned with three aspects of internal control for the sales
and collection cycle. Which of the following is not one of their major concerns?
A) Controls over cutoff
B) Controls that prevent or detect embezzlements
C) Controls over sales discounts
D) Controls related to the allowance for uncollectible accounts
Answer: C
Terms: Sales and collection cycle
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
1
,4) For sales, the occurrence transaction-related audit objective affects which of the
following balance-related audit objective?
A) Existence
B) Completeness
C) Rights
D) Detail tie-in
Answer: A
Terms: Sales transaction-related audit objective
Diff: Moderate
Objective: LO 16-1
AACSB: Reflective thinking skills
5) For cash receipts, the occurrence transaction-related audit objective affects which of
the following balance-related audit objective?
A) Existence
B) Completeness
C) Rights
D) Detail tie-in
Answer: B
Terms: Cash receipts transaction-related objective
Diff: Moderate
Objective: LO 16-1
AACSB: Reflective thinking skills
6) For sales, the completeness transaction-related audit objective affects the existence
balance- related audit objective.
A) True
B) False
Answer: B
Terms: Completeness transaction-related audit objective; Existence balance-related audit
objective
Diff: Moderate
Objective: LO 16-1
AACSB: Reflective thinking skills
7) Recording a sale that did not occur violates the occurrence transaction-related audit
objective and the existence balance-related audit objective.
A) True
B) False
Answer: A
Terms: Cash receipts; Occurrence transaction-related audit objective; existence balance-related
audit objective
Diff: Moderate
Objective: LO 16-1
AACSB: Reflective thinking skills
2
,8) The accounts receivable balance-related audit objective net realizable value is not affected
by assessed control risk for sales or cash receipts.
A) True
B) False
Answer: A
Terms: Accounts receivable balance-related audit objective net realizable value; Assessed
control risk
Diff: Moderate
Objective: LO 16-1
AACSB: Reflective thinking skills
9) The results of the tests of controls determine whether assessed control risk for sales and
cash receipts needs to be revised.
A) True
B) False
Answer: A
Terms: Tests of controls and control risk
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
10) Auditors use the results of the substantive tests of transactions of sales and the
collection cycle to determine the extent to which inherent risk is satisfied for each accounts
receivable balance-related audit objective.
A) True
B) False
Answer: B
Terms: Tests of controls and substantive tests of transactions
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
Learning Objective 16-2
1) Which of the following types of receivables would not deserve the special attention of
the auditor?
A) Accounts receivables with credit balances
B) Accounts that have been outstanding for a long time
C) Receivables from related parties
D) Each of the above would receive special attention.
Answer: D
Terms: Receivables; Special attention
Diff: Easy
Objective: LO 16-2
AACSB: Reflective thinking skills
3
, 2) Analytical procedures are substantive tests and, if the results of the analytical procedures
are favorable, the auditor would normally:
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. Answer: A
Terms: Analytical procedures; Substantive tests
Diff: Moderate
Objective: LO 16-2
AACSB: Reflective thinking skills
3) Analytical procedures:
A) are only done during the planning of the audit and when performing detailed tests.
B) performed during the detailed testing phase are done before tests of details of balances.
C) performed during the detailed testing phase are done before the balance sheet date.
D) are performed only on accounts receivable, not on the entire sales and collection
cycle. Answer: B
Terms: Analytical procedures
Diff: Moderate
Objective: LO 16-2
AACSB: Reflective thinking skills
4) Which of the following is a correct statement regarding analytical procedures?
A) If an auditor identifies a possible misstatement in sales using analytical procedures,
accounts payable will be the likely offsetting misstatement.
B) Auditors should also compare the results of their analytical procedures to budgets
and industry trends.
C) If sales are overstated, the income statement will be incorrect, but the balance sheet will
be correct.
D) If an analytical procedure uncovers an unusual fluctuation, the auditor must assume fraud
is involved.
Answer: B
Terms: Analytical procedures
Diff: Moderate
Objective: LO 16-2
AACSB: Analytic skills
4
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