Auditing Chapter 10 Exam Questions with Verified Solutions (100% Correct)
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Auditing Chapter 10
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Auditing Chapter 10
Auditing Chapter 10 Exam Questions with Verified Solutions (100% Correct)
An auditor's analytical procedures have revealed that the accounts receivable of a client have doubled since the end of the prior year. However, the allowance for doubtful accounts, as a percentage of accounts receivable rem...
Auditing Chapter 10 Exam Questions with Verified Solutions (100% Correct)
An auditor's analytical procedures have revealed that the accounts receivable of a client have doubled
since the end of the prior year. However, the allowance for doubtful accounts, as a percentage of
accounts receivable remained about the same. Which of the following client explanations most likely
would satisfy the auditor?
A) Credit standards were liberalized in the current year.
B) Twice as many accounts receivable were written off in the prior year as compared to this year.
C) A greater percentage of accounts were currently listed in the "more than 90 days overdue" category
than in the prior year.
D) The client opened a second retail outlet in the current year and its credit sales approximately
equaled the older, established outlet. - Answers D) The client opened a second retail outlet in the
current year and its credit sales approximately equaled the older, established outlet.
By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally be
able to detect: - Answers An unrecorded deposit made at the bank at the end of the month.
Kiting would least likely be detected by: - Answers Comparing customer remittance advices with
recorded disbursements in the cash disbursements journal.
Your client left the cash receipts journal open after year-end for an extra day and included January 1
cash receipts in the 12/31/XX totals. All of those cash receipts were due to cash sales. Assuming the
client uses a periodic inventory system with a 12/31/XX count of the physical inventory, which of the
following is most likely to be true relating to the year XX financial statements?
A) Sales are understated.
B) Accounts receivable are understated.
C) Inventory is overstated.
D) Net income is overstated. - Answers D) Net income is overstated.
An internal control questionnaire indicates that an approved receiving report is required to accompany
every check request for payment of merchandise. Which of the following procedures provides the best
evidence on operating effectiveness?
A) Select and examine receiving reports and test whether the related canceled checks are dated no
earlier than the receiving reports.
B) Select and examine receiving reports and test whether the related canceled checks are dated no later
than the receiving reports.
, C) Select and examine canceled checks and test whether the related receiving reports are dated no
earlier than the checks.
D) Select and examine canceled checks and test whether the related receiving reports are dated no
later than the checks. - Answers D) Select and examine canceled checks and test whether the related
receiving reports are dated no later than the checks.
By preparing a four-column bank reconciliation ("proof of cash") at year-end, an auditor will generally
not be able to detect: - Answers A second payment of an account payable which had already been paid
in full two months earlier.
Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not
recorded as outstanding on the year-end bank reconciliation? - Answers Receive a cutoff statement
directly from the client's bank.
An auditor may obtain information on the December 31 month-end balance per bank in which of the
following?
Standard Confirmation Form January 1-10 Cutoff Statement
A) Yes Yes
B) Yes No
C) No Yes
D) No No - Answers A) Yes Yes
An auditor may obtain information on the December 31 month-end balance per bank in which of the
following?
December 31 Bank Statement Schedule of Bank (Cash) Transfers
A) Yes Yes
B) Yes No
C) No Yes
D) No No - Answers B) Yes No
Which of the following is correct concerning "window dressing" for cash?
A) A segregation of duties within the cash function effectively eliminates its occurrence.
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