1. The auditor wants to gain assurance that all telephone orders received were shipped and billed in a timely fashion. Which of the following audit procedures would be most effective in meeting the auditor's objective?
a. Use an integrated test facility and submit product orders to the ITF. Compare the prices invoiced with the prices in the most recent catalog.
b. Take the computer log of incoming orders and use generalized audit software to compare order date with invoice and shipping date in the sales invoice file.
c. Use test data to generate batch control totals. Trace the batch control totals from the items submitted to the sales invoice file generated for the test data.
d. Use generalized audit software to randomly select a sample of sales invoices and have the software match the items selected to the log of transactions maintained for incoming orders.
2. To test the completeness of sales, the auditor would select a sample of transactions from the population represented by the:
a. Customer order file
b. Open invoice file
c. Bill of lading file
d. Sales invoice file
3. The auditor is concerned that fictitious sales have been recorded. The best audit procedure to identify the existence of the fictitious sales would be to:
a. Select a sample of recorded invoices and trace to shipping documents (bills of lading and packing slips) to verify shipment of goods.
b. Select a random sample of shipping documents (bills of lading) and trace to the invoice to determine whether the invoice was properly recorded.
c. Select a sample of customer purchase orders and trace through to the generation of a sales invoice.
d. Select a sample of invoices and trace to a customer purchase order to determine whether a valid customer actually exists.
4. The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because:
a. Many customers merely sign and return the confirmation without verifying its details.
b. Recipients usually respond only if they disagree with the information on the request.
c. Customers may not be inclined to report understatement errors in their accounts.
d. Auditors typically select many accounts with small balances to be confirmed.
5. An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:
a. No reply to a positive confirmation request is received.
b. No reply to a negative confirmation request is received.
c. Collectibility of the receivables is in doubt.
d. Pledging of the receivables is probable.
6. Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:
a. Most recipients usually lack the willingness to respond objectively.
b. Some recipients may report incorrect balances that require extensive follow-up.
c. The auditor cannot infer that all non-respondents have verified their account information.
d. Negative confirmations do not produce evidential matter that is statistically quantifiable.
e. All of the above.
7. A customers confirmed its balance by fax. Which of the following would not reduce the risk associated with the response?
a. Consider the fax response to be an exception.
b. Examine subsequent collections of the account.
c. Request the customer to mail the original confirmation to the auditor.
d. Consider the fax to be an acceptable confirmation response.