5) An auditor is comparing the write-off of uncollectible accounts as a percentage of total accounts receivable with previous years. A possible misstatement this procedure could uncover is:A) overstatement or understatement of sales.B) overstatement or understatement of accounts receivable.C) overstatement or understatement of bad debt expense.D) overstatement or understatement of sales returns and allowances.Answer: CTerms: Understatement of sales and accounts receivableDiff: ChallengingObjective: LO 16-2AACSB: Analytic skills6) Below are listed possible misstatements that could occur in the sales and collections cycle. Provide the analytical procedure that would be most useful in detecting the possible misstatement.7) Favorable results from analytical procedures may reduce the extent to which the auditor needsto test details of balances.A) TrueB) FalseAnswer: ATerms: Analytical procedures; Test details of balancesDiff: EasyObjective: LO 16-2AACSB: Reflective thinking skills5
8) When analytical procedures in the sales and collection cycle uncover unusual fluctuations, the auditor should make additional inquiries of management.9) A high inherent risk increases planned detection risk and decreases planned substantive tests.Learning Objective 16-31) The understatement of sales and accounts receivable is best uncovered by:A) testing internal controls.B) testing the aged accounts receivable trial balance.C) substantive tests of transactions for shipments made but not recorded.D) substantive tests of transactions for bad debts.Answer: CTerms: Understatement of sales and accounts receivableDiff: EasyObjective: LO 16-3AACSB: Reflective thinking skills2) Tests of which balance-related audit objective are normally performed first in an audit of the sales and collection?6
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- Winter '15
- AACSB, Lo