To
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Auditing and Assurance Services, 14e (Arens)
Chapter 16 Completing the Tests in the Sales and Collection
Cycle: Accounts Receivable
Learning Objective 16-1
1) The net realizable value of accounts receivable is equal to:
A) gross accounts receivable less allowance for uncollectible accounts.
B)gross accounts receivable less bad debt expense.
C) gross accounts receivable less returns and allowances.
D) gross accounts receivable less sales discounts.
Answer: A
Terms: Revenue recognition
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
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. Answer: B
Terms: Classes of transactions; Sales and collection cycle
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
3)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
, To
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4)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.
Answer: D
Terms: Inherent risk; Balance-related audit objectives
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
5)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
6)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
7)Favorable results from analytical procedures may reduce the extent to which the
auditor needs to test details of balances.
A) True
B) False
Answer:
A
Terms: Analytical procedures; Test details of balances
Diff: Easy
Objective: LO 16-1
AACSB: Reflective thinking skills
, To
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8)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
9)For cash receipts, the occurrence transaction-related audit objective affects the
completeness balance-related audit objective.
A)
True
B)
False
Answer: A
Terms: Cash receipts; Occurrence transaction-related audit objective; Completeness balance-related
audit objective
Diff: Moderate
Objective: LO 16-1
AACSB: Reflective thinking skills
10) 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
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
, To
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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)In performing your audit you noticed that often times goods are shipped that are not
matched with the corresponding sales invoice. This control deficiency could cause:
A) understatement of revenues and overstatement of
inventory. B) overstatement of revenues and
understatement of inventory. C) understatement of
revenues and inventory.
D) overstatement of revenues and
inventory. Answer: A
Terms: Control deficiency
Diff: Moderate
Objective: LO 16-2
AACSB: Reflective thinking skills
4)An auditor selects a sample of shipping documents in order to determine if the related
sales invoices were prepared. This test would gather evidence concerning which audit
objective?
A)
Completeness
B) Detail tie-in
C) Occurrence
D) Realizable
value Answer: A
Terms: Evidence; Audit objected
Diff: Moderate
Objective: LO 16-2
AACSB: Analytic skills
5)The understatement of sales and accounts receivable is best uncovered by:
A) confirming receivables.
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. Answer: C
Terms: Understatement of sales and accounts receivable
Diff: Challenging
Objective: LO 16-2
AACSB: Analytic skills
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