16-15 (Objective 16-4) Define what is meant by alternative procedures in theconfirmation of accounts receivable and explain their purpose. Which alternativeprocedures are the most reliable? Why?16-16 (Objective 16-4) Explain why the analysis of differences is important in theconfirmation of accounts receivable, even if the misstatements in the sample are notmaterial.16-17 (Objective 16-4) State three types of differences that might be observed in theconfirmation of accounts receivable that do not constitute misstatements. For each, statean audit procedure that will verify the difference.16-18 (Objective 16-1) What is the relationship of each of the following to the sales andcollection cycle: flowcharts, assessing control risk, tests of controls, and tests of details ofbalances?16-19 (Objective 16-3) Describe accounting requirements for proper recording of salesreturns and allowances.Apago PDF EnhancerMULTIPLE CHOICE QUESTIONS FROM CPA EXAMINATIONS16-20 (Objective 16-2) The following questions concern analytical procedures in the sales and collection cycle. Choose the best response.a. As a result of analytical procedures, the auditor determines that the gross profitpercentage has declined from 30% in the preceding year to 20% in the current year.The auditor should(1) express a qualified opinion due to inability of the client company to continue as a going concern.(2) evaluate management’sperformance in causing this decline. (3) require footnote disclosure.(4) consider the possibility of a misstatement in the financial statements.b. After a CPA has determined that accounts receivable have increased as a result ofslow collections in a “tight money” environment, the CPA will be likely to(1) increase the balance in the allowance for bad debt account.(2) review the going concern ramifications.(3) review the credit and collection policy.(4) expand tests of collectibility.c. In connection with his review of key ratios, the CPA notes that Pyzi hadaccounts receivable equal to 30 days’sales at December 31, 2010, and to 45days’sales at December 31, 2011. Assuming that there have been no changesin economic conditions, clientele, or sales mix, this change most likely will indicate(1) a steady increase in sales in 2011. (2) an easing of credit policies in 2011.(3) a decrease in accounts receivable relative to sales in 2011.(4) a steady decrease in sales in 2011.Chapter 16 / COMPLETING THE TESTS IN THE SALES AND COLLECTION CYCLE: ACCOUNTS RECEIVABLE543
16-21 (Objective 16-4) The following questions deal with confirmation of accounts receivable. Choose the best response.a. The negative form of accounts receivable confirmation request is useful except when (1) internal control surrounding accounts receivable is considered to be effective. (2) a large number of small balances are involved.
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