An example of a qualitative factor auditors will consider when determining sample size is _______.

-the days in receivables ratio

-significant turnover in the accounts receivable department

-the accounts receivable turnover ratio

-the percentage of bad debt expense

One method of selecting specific items from a population when testing for overstatement is to _______.

-select items that are identical dollar amounts

-allow management to select them

-select items that are over a certain dollar amount

-allow the internal auditors to select them

Question 41

If testing the operating effectiveness of controls surrounding an estimate alone does not provide sufficient appropriate audit evidence, _______.

-the auditors should disregard testing of controls completely, and instead focus on substantive testing

-the auditors should consider increasing the risk and cost associated with the audit

-auditors also conduct substantive procedures on the reasonableness of accounting estimates

-auditors also conduct tests of internal controls pertaining to the reasonableness of accounting estimates

Question 42

The difference between what is reported in the client prepared financial statements and what is required for the item to be presented fairly in accordance with the applicable financial reporting framework is called _______.

-auditing misappropriation

-accumulated inaccuracy

-projected estimate

-misstatement

Question 43

In the revenue cycle, which of the following assertions does not apply to the relevant account balances in the revenue cycle?

-Existence

-Completeness

-Classification

-Valuation

With respect to performing analytical procedures to understand total revenue, the auditor should understand _______.

-how the firm relates its cost of goods sold to revenue recognition

-how the client firm handles depreciation entries related to contra-revenue accounts

-revenue recognition methods of all firms within the industry

-the entity's capacity, the maximum volume of sales that it could generate if it fully utilized its facilities and employees to manufacture and deliver products and services

If a reasonable estimate of potential refunds cannot be made, _______.

-no revenue recognition should occur during the life of the refund obligation

-the firm should simply disregard any expense and handle on a case-by-case basis

-a portion of the revenue should recognized immediately upon sale

-revenue should not be recognized until the material uncertainty is resolved

Recognizing revenues without shipping would lead to ________ gross margins and _______ accounts receivable turnover in days.

-decreased; low

-decreased; high

-increased; high

-increased; low

As an important control for the occurrence assertion related to sales, the computer starts with the population of daily sales invoices and develops a one for one match with underlying shipping documents to ensure that each sales invoice is supported by a ________.

-packing slip

-bill of lading

-sales invoice

-sales order

Which of the following is a control for the completeness (of cash receipts assertion)?

-The computer starts with the population of daily cash receipts recorded in the daily remittance report and develops a one for one match with the underlying bank remittance report.

-The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report.

-The computer starts with the population of daily cash receipts recorded in the daily remittance report and it compares the dollar amount of each recorded cash receipt with the underlying bank remittance report.

-The computer starts with the population of daily cash receipts recorded in the daily remittance report and compares the date recorded in the daily remittance report with the date received and deposited by the bank.

Good internal controls over the write-off of uncollectible accounts ________.

-are optional if the company is smaller in size

-are important to prevent write-offs from being used to conceal fraud in processing cash receipts

-are typically expensive and cumbersome to implement

-are less important if accounts receivable are outsourced

Which assertion do auditors test when they trace a sample of sales, cash receipts, and sales adjustment transactions to their recording in the accounting records?

-Accuracy

-Completeness

-Classification

-Cutoff