Multiple Choice Questions
The following questions concern audit objectives and management assertions for accounts receivable. Choose the best response.
a. When evaluating the adequacy of the allowance for uncollectible accounts, an auditor reviews the entity's aging of receivables to support management's balance-related assertion of
(1) Existence.
(2) Completeness.
(3) Valuation and allocation.
(4) Rights and obligations.
b. Which of the following audit procedures will best uncover an understatement of sales and accounts receivable?
(1) Test a sample of sales transactions, selecting the sample from prenumbered shipping documents.
(2) Test a sample of sales transactions, selecting the sample from sales invoices recorded in the sales journal.
(3) Confirm accounts receivable.
(4) Review the aged accounts receivable trial balance.
c. The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because
(1) Many customers merely sign and return the confirmation without verifying details.
(2) Recipients usually respond only if they disagree with the information on the request.
(3) Customers may not be inclined to report understatement errors in their accounts.
(4) There is likely to be reliable third party evidence available.