(Objective 16-3) The following questions concern audit objectives and management assertions for accounts receivable. Choose the best response.
a. Which of the following will most likely provide the most assurance concerning the accuracy balance-related objective for accounts receivable?
(1) Vouch amounts in the subsidiary ledger to details on shipping documents.
(2) Compare receivable turnover ratios with industry statistics for reasonableness.
(3) Inquire about receivables pledged under loan agreements.
(4) Assess the allowance for uncollectible accounts for reasonableness.
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) customers may not be inclined to report understatement errors in their accounts.
(2) recipients usually respond only if they disagree with the information on the request.
(3) many customers merely sign and return the confirmation without verifying details.
(4) there is likely to be reliable third party evidence available.
Objective 16-3
Design and perform tests of details of balances for accounts receivable.
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