50 .The negative request form of accounts receivable confirmation is useful particularlywhen theAssessed Level of Risk of MaterialMisstatement Relating to Receivables IsNumber of SmallBalances IsProper Considerationby the Recipient Isa. Low Many Likelyb. Low Few Unlikelyc. High Few Likelyd. High Many Likely a. Correct Negative confirmations are most appropriate when the assessed level of risk is low, dollar balances on accounts are small, and the auditor believes recipients will give consideration to the confirmations. 51. When an audit team traces a sample of shipping documents to the related sales invoice copies,they are trying to find relevant evidence that
a. Correct Shipments are traced to customers' invoices. (This does not imply that the invoices were recorded in the sales journal.) 52. Write-offs of doubtful accounts should be approved byc. Correct The treasurer or another high-ranking manager should approve write-offs. 53. When an audit team does not receive a response on a positive accounts receivable confirmation,auditors should do all of the following exceptb. Correct Because the confirmations are a sample of the account balance, even immaterial items should be followed up as they represent other balances in the universe of receivables. 54. Cash receipts from sales on account have been misappropriated. Which of thefollowing actswould conceal this defalcation and be least likely to be detected by an auditor?a. Understating the sales journal.b. Overstating the accounts receivable control account.c. Overstating the accounts receivable subsidiary ledger.d. Understating the cash receipts journal. a. Correct Not recording sales on account in the books of original entry is the most effective way to conceal a subsequent theft of cash receipts. The accounts will be incomplete but balanced, andprocedures applied to the accounting records will not detect the defalcation. 55. Which of the following internal control activities most likely would deter lapping of collectionsfrom customers?
c. Correct Lapping is the delayed recording of cash receipts to cover a cash shortage. Current receipts are posted to the accounts of customers who paid one or two days previously to avoid complaints (and discovery) when monthly statements are mailed. The best protection is for the customers to send payments directly to the company's depository bank. The next best procedure is to ensure that the accounts receivable clerk has no access to cash received by the mail room.