Principles Of Auditing & Other Assurance Services 21st Edition By Ray Whittington – Test Bank

Chapter 11 Accounts Receivable, Notes Receivable, and Revenue

1) The department approving a sales transaction should be the billing department.

Answer: FALSE
Difficulty: 1 Easy
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

2) Accounts receivable that are written off should not be turned over to a collection agency.

Answer: FALSE
Difficulty: 1 Easy
Topic: Receivables
Learning Objective: 11-03 Describe the documents, records, and accounts that compose the revenue (sales) transactions cycle and the fundamental controls over receivables and revenue.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

3) An aged trial balance of accounts receivable may provide evidence on the adequacy of the allowance for uncollectible accounts.

Answer: TRUE
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

4) Confirmation of accounts receivable by direct communication with the debtor tests the existence of accounts receivable.

Answer: TRUE
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
5) Confirmation requests should contain a “business reply” envelope addressed to the auditors at the client’s address.

Answer: FALSE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

6) CPAs use positive accounts receivable confirmation requests more frequently than negative accounts receivable confirmation requests.

Answer: TRUE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

7) Confirmation of accounts receivable provides absolute assurance that no lapping or other manipulation affecting accounts receivable is being carried on.

Answer: FALSE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

8) Analytical procedures are used by auditors to gain evidence about the adequacy of the allowance for uncollectible accounts.

Answer: TRUE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

9) When it is impossible to confirm accounts receivable, the auditors may be able to satisfy themselves as to the existence of accounts receivable by alternative procedures.

Answer: TRUE
Difficulty: 2 Medium
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

10) Material accounts receivable from related parties should be stated separately from other receivables.

Answer: TRUE
Difficulty: 1 Easy
Topic: Audit of Receivables and Revenue
Learning Objective: 11-06 Assess the risks of material misstatement of receivables and revenue and design further audit procedures, including tests of controls and substantive procedures, to address the risks.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation