Question

1. Auditors often follow a "cycle" approach to the gathering of evidence. Of the following accounts, which typically would NOT be part of the sales cycle?

      a. Accounts receivable

      b. Allowance for doubtful accounts

      c. Inventory

      d. Sales returns and allowances

      e. None of the above

2. The assertion COMPLETENESS involves

      a. Overstatement.

      b. Ownership.

      c. Professional Skepticism.

      d. Understatement.

3. To be appropriate, evidence should be relevant and reliable. Under which of the situations would evidence be considered to be More rather than LESS reliable:

a. Evidence is obtained from accounting records developed under a properly designed, and implemented, system of internal controls.

b. Evidence relates to accounts based on estimates rather than accounts with objective amounts.

c. The auditor has no experience in considering the value of the company’s inventory.

d. The auditor scans the accounts receivable subsidiary ledger rather than sending accounts receivable confirmations to customers of the company being audited.

4. Auditors sometimes use ratios as audit evidence. For example, an unexplained DECREASE in the ratio of gross profit to sales may suggest which of the following possibilities?
     a. Fictitious purchases.
     b. Unrecorded purchases.

     c. Fictitious sales.
     d. Selling expense recorded as general expense.

Answer 1

1. Auditors often follow a "cycle" approach to the gathering of evidence. Of the following accounts, which typically would NOT be part of the sales cycle?
a. Accounts receivable		The sales cycle
b. Allowance for doubtful accounts		1. Sales (cash and on account)
c. Inventory	Correct	2. Cash receipt
d. Sales returns and allowances		3. Sales returns and allowances
e. None of the above		4. Writte-off of uncollectible account
2. The assertion COMPLETENESS involves
a. Overstatement.
b. Ownership.	Correct	All assets, liabilities and equity interests that are in existence and owned by the entity have been recorded.
c. Professional Skepticism.
d. Understatement.
3. To be appropriate, evidence should be relevant and reliable. Under which of the situations would evidence be considered to be More rather than LESS reliable:
a. Evidence is obtained from accounting records developed under a properly designed, and implemented, system of internal controls.
b. Evidence relates to accounts based on estimates rather than accounts with objective amounts.
c. The auditor has no experience in considering the value of the company’s inventory.
d. The auditor scans the accounts receivable subsidiary ledger rather than sending accounts receivable confirmations to customers of the company being audited.	Correct
4. Auditors sometimes use ratios as audit evidence. For example, an unexplained DECREASE in the ratio of gross profit to sales may suggest which of the following possibilities?
a. Fictitious purchases.	Correct	Sales and incorrect amount of cost of good sold results in decrease in gross profit, therefore gross profit ratio will reduced
b. Unrecorded purchases.
c. Fictitious sales.
d. Selling expense recorded as general expense.