Multiple Choice Questions
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.
(3) The auditor has reason to believe the persons receiving the requests are likely to give them consideration.
(4) Individual account balances are relatively large.
b. The return of a positive confirmation of accounts receivable without an exception attests to the
(1) Collectibility of the receivable balance.
(2) Accuracy of the receivable balance.
(3) Accuracy of the aging of accounts receivable.
(4) Accuracy of the allowance for uncollectible accounts.
c. In confirming a client's accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation responses. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year's audit, the auditor will most likely choose
(1) Individual overdue balances.
(2) Individual invoices.
(3) Small account balances.
(4) Large account balances.