Chapter 9 TB

Question 1

(T/F) The revenue cycle considered by auditors includes the sales process but not collections.

Answer 1

FALSE

Question 2

(T/F) The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction, and collecting the receivable.

Answer 2

TRUE

Question 3

(T/F) The shipping department confirms the shipment of goods by completing the packing slip and returning it to the purchasing department.

Answer 3

FALSE

STEP 6 in the Sales Process:
The shipping department records goods shipped and sends verification to the billing department for the generation of a sales invoice.

Question 4

(T/F) Monthly statements provide a detailed list of the customer’s activity for the previous month and a statement of all open items.

Answer 4

TRUE

Open Item refers to a financial transaction or record that has not yet been fully processed, reconciled, or settled. Open items are usually listed in a company’s accounting records or financial statements, and they need to be resolved or closed out to ensure the accuracy of the financial statements.

Question 5

(T/F) Invoices are normally prepared when the organization receives confirmation that goods were delivered to customers.

Answer 5

FALSE

An invoice should be issued when the vendor (or supplier) has completed a customer’s order. The order could be for products, services, or both. For a business that’s providing a product, usually an invoice will be generated shortly after delivery.

The shipping department records goods shipped and sends verification to the billing department for the generation of invoice.

Question 6

(T/F) The use of prenumbered sales invoices is the primary control procedure to satisfy the objective of authorization.

Answer 6

FALSE

The use of prenumbered sales invoices is the primary control procedure to satisfy the objective of completeness.

Question 7

(T/F) In a control risk assessment questionnaire, each negative (or “No”) answer to a question represents a potential internal control deficiency.

Answer 7

TRUE

Question 8

(T/F) Formal procedures for approving acceptance of returns are an appropriate control procedure for identifying and recording returned goods.

Answer 8

TRUE

Question 9

(T/F) One of the benefits of establishing a formal credit policy for granting credit is that management is freed from the burden of monitoring accounts receivable.

Answer 9

FALSE

Question 10

(T/F) Substantive tests of details for revenue transactions focus primarily on the completeness assertion.

Answer 10

FALSE

Management is more incentivized to overstate revenue, rather than understate it.

Question 11

(T/F) An appropriate mix of evidence for a low-risk client could include 20% tests of details, 40% analytics, and 40% tests of controls; an appropriate mix of evidence for a high-risk client could include 60% tests of details, 20% analytics, and 20% tests of controls.

Answer 11

TRUE

Question 12

(T/F) As required by auditing standards, auditors should ordinarily presume there is a risk of material misstatement caused by fraud relating to revenue recognition.

Answer 12

TRUE

Question 13

(T/F) A company that ships a large quantity of its products from its manufacturing plant to a warehouse that it leases until the customer is ready for the product should record the delivery to the warehouse as revenue.

Answer 13

FALSE

Question 14

(T/F) The intentional loading of sales at the end of a period to customers that do not need the goods at that time should not be recorded as revenues.

Answer 14

TRUE

Channel stuffing

Question 15

(T/F) The basic concept for revenue recognition is the realization of cash.

Answer 15

FALSE

Question 16

(T/F) A tendency for fraud may exist when the granting of stock options is dependent on reaching an earnings goal.

Answer 16

TRUE

Question 17

(T/F) A consistent pattern of earnings growth would eliminate the auditor’s concern for fraud in revenue recognition.

Answer 17

FALSE

“Too good to be true.”

Question 18

(T/F) When lapping occurs, all or most customer account balances will be overstated at any one time, making it relatively easy for auditors to detect the scheme.

Answer 18

FALSE

Question 19

(T/F) The auditor should be alert to the risk of material misstatements when cash flows from operations are negative and net income and revenues have increased.

Answer 19

TRUE

Question 20

(T/F) Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

Answer 20

TRUE

Question 21

(T/F) The auditor’s determination that the number of days’ sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.

Answer 21

TRUE

Question 22

(T/F) Edge and Gregg, LLP would most likely discover a client’s first-time use of channel stuffing through the use of trend analysis.

Answer 22

TRUE

Question 23

(T/F) Use of reasonableness tests by Bono Mullins, PC, will include relationships between financial but not non-financial data.

Answer 23

FALSE

Reasonableness testing – the analysis of accounts, or changes in accounts between accounting periods, that involves the development of a model to form an expectation based on financial data, non - financial data, or both.

Question 24

(T/F) The auditor has determined that the control risk for the existence assertion is low; therefore, the auditor may reduce the number of items tested on a substantive basis.

Answer 24

TRUE

Question 25

(T/F) Confirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been sold to the bank on a recourse basis.

Answer 25

FALSE ## Footnote Confirmations with banks will help identify any loan agreements wherein accounts receivables have been pledged as collateral.

Question 26

(T/F) When the auditor seeks evidence concerning the allowance for doubtful accounts, he or she would most likely use an aged trial balance to help identify past due balances.

Answer 26

TRUE

Question 27

(T/F) Current auditing standards do not require the confirmation of receivables if accounts receivable are not material.

Answer 27

TRUE

Question 28

(T/F) Accounts receivable confirmation letters should be prepared on the auditing firm's letterhead.

Answer 28

FALSE ## Footnote Accounts receivable confirmation letters should be prepared on the client's letterhead.

Question 29

(T/F) Alternative procedures to the confirmation of receivables include review of subsequent collections and examination of supporting evidence.

Answer 29

TRUE

Question 30

(T/F) Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.

Answer 30

FALSE ## Footnote Lapping of accounts receivable is more likely to occur when there is an inadequate segregation of duties.

Question 31

(T/F) Positive accounts receivable confirmations should be used on all accounts which represent small immaterial balances.

Answer 31

FALSE ## Footnote Negative confirmations could be used on accounts which represent small immaterial balances.

Question 32

(T/F) When the client has a large number of relatively small accounts receivable and the assessed level of control risk for receivables and related revenue transactions is high, the auditor is more likely to use negative confirmations.

Answer 32

FALSE ## Footnote Use positive confirmations when the assessed level of control risk for receivables and related revenue transactions is high.

Question 33

(T/F) The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

Answer 33

FALSE ## Footnote Focus on before and after year-end.

Question 34

(T/F) An example of a control over the sales cycle is the authorization of price lists by the appropriate sales and marketing manager.

Answer 34

TRUE

Question 35

(T/F) An auditor would test controls over the occurrence of sales transactions by sampling recorded revenues and tracing them back to invoices and shipping documents.

Answer 35

TRUE

Question 36

(T/F) If control risk is assessed high, the auditor may send significantly fewer confirmations for a sample of accounts receivable than if the control risk is assessed low.

Answer 36

FALSE ## Footnote If control risk is assessed high, the auditor may send significantly more confirmations for a sample of accounts receivable than if the control risk is assessed low.

Question 37

(T/F) In planning an audit for the revenue cycle, the auditor must consider the integrated relationship of evidence found between the accounts receivable and the notes payable accounts.

Answer 37

FALSE

Question 38

(T/F) A method of testing for the completeness of sales is to test the sequence of sales invoices used during the period under audit.

Answer 38

TRUE

Question 39

(T/F) Material debit balances in accounts payable for amounts due from vendors should be reclassified as accounts receivable.

Answer 39

TRUE

Question 40

(T/F) The use of data analytics tools makes the audit of the revenue cycle more effective, but not more efficient.

Answer 40

FALSE

Question 41

(T/F) Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

Answer 41

TRUE

Question 42

(T/F) Valid evidence obtained in an audit for testing the cutoff of sales includes receiving reports for returned merchandise.

Answer 42

TRUE

Question 43

(T/F) An example of a test for completeness in the revenue cycle includes the sampling of shipping documents and tracing them to the sales journal and general ledger.

Answer 43

TRUE ## Footnote Tracing

Question 44

(T/F) Negative confirmations are more expensive to administer than positive confirmations because of the added costs of investigating non-responses.

Answer 44

FALSE

Question 45

(T/F) Exceptions found in the confirmation of accounts receivable balances need not be projected as errors to the population as they are typically isolated errors.

Answer 45

FALSE

Question 46

(T/F) A timing difference type of exception in the confirmation process may arise when goods are in transit at the confirmation date.

Answer 46

TRUE

Question 47

(T/F) Negative confirmations are considered to be more persuasive than positive confirmations.

Answer 47

FALSE

Question 48

(T/F) Confirmation of accounts receivable is generally not effective in addressing the existence of fictitious sales recorded by the client.

Answer 48

FALSE ## Footnote Confirmation of accounts receivable is generally effective in addressing the existence of fictitious sales recorded by the client.

Question 49

(T/F) An auditor's primary concern with identifying related party sales and receivables rests with the presentation and disclosure assertion.

Answer 49

TRUE

Question 50

(T/F) Customer complaints noted in returned accounts receivable confirmations may be an indicator of fraud.

Answer 50

TRUE

Question 51

(T/F) The audit team typically reviews journal entries in the receivables ledger for unusual entries that may be indicators of fraudulent activity.

Answer 51

TRUE

Question 52

(T/F) Estimation of the allowance for doubtful accounts is a simple management decision as it is determined as a percentage of sales.

Answer 52

FALSE

Question 53

(T/F) An auditor might test the reasonableness of the client’s estimate of the allowance for doubtful accounts by developing an independent estimate of the allowance for doubtful accounts that is compared to the recorded allowance.

Answer 53

TRUE

Question 54

(T/F) While electronic confirmations of receivables are more efficient, they are seldom used because they are not considered as reliable as paper confirmations.

Answer 54

FALSE

Question 55

(T/F) Pre-numbered shipping and billing documents are examples of controls related to the completeness of sales transactions.

Answer 55

TRUE

Question 56

(T/F) An aging of accounts receivable is useful in estimating the reasonableness of the allowance for doubtful accounts.

Answer 56

TRUE

Question 57

Which of the following processes are not included in the revenue cycle? Sending payments to suppliers. Obtaining credit approval. Preparing and sending monthly statements to customers. Shipping products to customers.

Answer 57

Sending payments to suppliers.

Question 58

Which of the following is the fifth step in the five-step revenue recognition process prescribed by ASC 606? Satisfaction of a performance obligation. Execution of an enforceable contract for the transfer of goods or services. Collection of substantially all of the transaction price from the customer. None of the above.

Answer 58

Satisfaction of a performance obligation.

Question 59

Which of the following is a formal document that conveys responsibility for shipped merchandise to the shipper? Sales invoice. Receiving report. Bill of lading. Purchase order.

Answer 59

Bill of lading.

Question 60

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives? To determine revenue recognition policies. To ensure customer satisfaction. To prevent lapping by the accounts receivable department. To minimize credit losses.

Answer 60

To minimize credit losses.

Question 61

Sales transactions should be documented at initiation in order to accomplish which of the following objectives? To provide the customer a copy of the transaction. To provide evidence of authorization and recording. To offer credit to customers. To generate back orders.

Answer 61

To provide evidence of authorization and recording.

Question 62

The purpose of the bill of lading is to provide which of the following? The warehouse personnel with the product that must be shipped to customers. Invoices to customers for proper collection. A credit application for customer approval. Evidence of title transfer of goods to customers.

Answer 62

Evidence of title transfer of goods to customers.

Question 63

The risk of material misstatement due to fraud relating to revenue recognition should be approached in a manner that is identical to control risk assessment. given lower priority to the risk of embezzlement. ordinarily presumed by the auditor. assumed to have been considered by the FASB.

Answer 63

ordinarily presumed by the auditor.

Question 64

A method used by companies to fraudulently inflate revenues includes which of the following? Use of hidden “side letters” giving the customer an irrevocable right to return the product. Recording of fictitious sales. Shipment of product not ordered by customers. All of the above.

Answer 64

All of the above.

Question 65

Which of the following evidences delivery of product to customers sufficient for company recording as revenues? A check received from the customer. An agreement to purchase product signed by the customer. A pick ticket in the warehouse. A bill of lading and tracking number with the shipper.

Answer 65

A bill of lading and tracking number with the shipper.

Question 66

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product? Cash is realized on the sale of the product. A price is discussed based upon the customer's resale of the product. The customer is given the option to return the product at any time. The product is transferred to the customer.

Answer 66

The product is transferred to the customer.

Question 67

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations? Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors. Gross margin is equivalent in the current period to previous periods and is below that of the industry. Sales are higher in the month preceding each quarter end. Sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.

Answer 67

Sales are higher in the month preceding each quarter end.

Question 68

Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing which of the following? Trend analysis. Ratio analysis. Reasonableness testing. Nonstatistical sampling.

Answer 68

Ratio analysis.

Question 69

An analysis of monthly sales compared with past years and budgets is a form of what type of testing? Regression analysis. Common size analysis. Ratio analysis. Trend analysis.

Answer 69

Trend analysis.

Question 70

Lithgow and Harris, CPAs, are performing the audit of Wild Flower Grocery Stores. Lithgow and Harris relates annual revenue to sales per square feet and sales per customer. What type of analysis is Lithgow and Harris most likely performing? Ratio analysis. Critical analysis. Reasonableness tests. Nonstatistical analysis.

Answer 70

Reasonableness tests.

Question 71

In an audit of financial statements, risks related to a high rate of return of products sold include which of the following? Sales that are recorded improperly. An estimate of accrued returns that reduces net income. A reduction of net sales for an increase to the sales returns and allowance account. Consignment goods that are returned and forwarded to third parties.

Answer 71

Sales that are recorded improperly.

Question 72

The major risk associated with receivables is related to which of the following? They may be sold to a bank with recourse. They may be recorded as long-term when in fact they will be realized in the current period. They will not be realized for the entire amount due. They are pledged as collateral as disclosed in the footnotes to financial statements.

Answer 72

They will not be realized for the entire amount due.

Question 73

Which of the following is a proper control for the detection of unusual sales transactions recorded in the general ledger? Electronic authorization prior to posting. Use of sequentially numbered sales documents. Random statements to customers. Review of transactions by upper management or the board.

Answer 73

Review of transactions by upper management or the board.

Question 74

A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following? Use of prenumbered shipping, invoice and sales documents. Use of prenumbered statements, inventory lists and credit memos. Reconciliation of invoices with customer statements. Use of pre-authorized price lists.

Answer 74

Use of prenumbered shipping, invoice and sales documents.

Question 75

The internal audit department at Monument Company receives electronic exceptions reports for all sales transactions entered over $10,000 in total. This process is performed for which purpose? Drafting financial statements. Monitoring revenue transactions. Providing management reports to the controller. Providing suggestions for operational improvement.

Answer 75

Monitoring revenue transactions.

Question 76

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following? Substantiate cutoff and the occurrence of net sales transactions. Test the sufficiency of cash balances to cover refunds. Monitor customer satisfaction for disclosure. Assess the nature of procedures that will be performed for the next period's audit.

Answer 76

Substantiate cutoff and the occurrence of net sales transactions.

Question 77

The auditor of the revenue cycle of ABC Company computes an estimate of ABC's allowance for doubtful accounts and compares it to the estimate provided by ABC's management. The purpose for this procedure is to substantiate which assertion? Existence of receivables. Cutoff of receivables. Valuation of receivables. Rights to receivables.

Answer 77

Valuation of receivables.

Question 78

What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate? Accounts receivable aging schedule. Copies of checks received from customers. Confirmations returned without exception. Stock prices of customer companies.

Answer 78

Accounts receivable aging schedule.

Question 79

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks? Examining sales contracts and inquiry of management. Confirming sales with customers. Discussing the transactions with qualified members of the Financial Accounting Standards Board. Comparing shipping documents with invoices.

Answer 79

Examining sales contracts and inquiry of management.

Question 80

The auditor traces recorded sales to invoices, sales orders, and shipping documents in order to substantiate which assertion? Cutoff. Completeness. Legality. Occurrence.

Answer 80

Occurrence.

Question 81

In the audit of the revenue of Hiram Manufacturing Company, the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit. The auditors compare the documents to the sales journal in order to test which of the following assertions? Existence of sales. Presentation and disclosure of receivables. Cutoff of sales transactions. Completeness of receivables.

Answer 81

Cutoff of sales transactions.

Question 82

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following? Shipping documents and tracing them to the sales journal. Accounts receivable and tracing them to cash receipts. Recorded sales transactions and tracing them to the general ledger. Inventory records and tracing them to the shipping documents.

Answer 82

Shipping documents and tracing them to the sales journal.

Question 83

Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. and decide to confirm a sample of accounts receivable. This test is performed by Homer and Moe primarily to substantiate which of the following assertions? Existence of related party transactions. Existence of accounts receivable. Obligation of debt. Cutoff of the allowance for bad debt.

Answer 83

Existence of accounts receivable.

Question 84

The aged accounts receivable report is utilized by the auditor to accomplish which of the following? Encourage the client to collect on receivables that are long past due. Select the type of confirmations that will be sent to banks. Assess the adequacy of the allowance for doubtful accounts. Identify debits in the receivables balance that should be reclassified to payables.

Answer 84

Assess the adequacy of the allowance for doubtful accounts.

Question 85

According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations? On every audit engagement. If the client agrees in writing to the procedure. If the accounts receivable balance is material. If environmental risk is low.

Answer 85

If the accounts receivable balance is material.

Question 86

The primary difference between positive and negative confirmations used in the audit of accounts receivable is which of the following? The mode of response. The amount of information included. The control of the confirmation process by the auditor. The method in which accounts are selected for confirmation.

Answer 86

The mode of response.

Question 87

For which of the following accounts receivable customer populations would the use of negative confirmations be most appropriate? A retail truck and trailer sales company with high inherent risk and moderate control risk over the revenue cycle. A utility company with control risk over the revenue cycle assessed high. A mortgage banking company with excellent control over the purchasing cycle. A cable company with control risk over the revenue cycle assessed low.

Answer 87

A cable company with control risk over the revenue cycle assessed low.

Question 88

Accounts receivable confirmations usually provide strong evidence about which of the following? The existence of receivables. The completeness of receivables. The presentation and disclosure of receivables. The obligations of receivables.

Answer 88

The existence of receivables.

Question 89

Confirmations that are sent to select customers asking them to review the current balance due the client as shown on the client's statement and return the letters directly to the auditor indicating whether they agree with the indicated balance, are known by which of the following terms? Direct confirmations. Indirect confirmations. Positive confirmations. Negative confirmations.

Answer 89

Positive confirmations.

Question 90

Which one of the following procedures would be considered improper by the auditor in the process of confirming receivables? The auditor allows the client's staff to prepare the confirmation letters after the auditor has chosen the items to be confirmed. The auditor allows the client to sign the confirmations after they are prepared. The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters. The auditor asks the addressee to return the confirmation to the audit firm's office.

Answer 90

The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters.

Question 91

An auditor's examination of the sales account using a cutoff test would most likely detect which of the following? Kiting. Sales made with improper credit terms. Lapping of accounts receivable. Sales recorded in the wrong period.

Answer 91

Sales recorded in the wrong period.

Question 92

Alternative procedures that would provide evidence of the existence of receivables would include which of the following? Physical observation of customer facilities. Review of subsequent collections. Analysis of the aged trial balance. A confirmation to the client management for customer accounts.

Answer 92

Review of subsequent collections.

Question 93

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons? Confirmations are selected based upon zip codes. A P.O. box is more reliable than a street address. Confirmations should be sent only to business addresses and not residential. The address may be routed to the client for retrieval and fraudulent signing.

Answer 93

The address may be routed to the client for retrieval and fraudulent signing.

Question 94

Unreturned positive confirmations for accounts receivable warrant which of the following actions? Replacing the sample selection with a new customer. Sending second requests and possibly performing subsequent procedures. The projection of larger misstatements to the population. Requesting that the client send additional audit correspondence to customers.

Answer 94

Sending second requests and possibly performing subsequent procedures.

Question 95

An example of alternative procedures for the confirmation of accounts receivable includes which of the following actions? Inquiry of management. Tracing source documents to recorded amounts. Review of subsequent collections on account by the client. Providing an estimate of the allowance for doubtful accounts to be recorded by the client.

Answer 95

Review of subsequent collections on account by the client.

Question 96

A key indicator of fraud in the revenue cycle is the auditor's detection of which of the following? Customer collections that are over 90 days past due. Credit entries in customer accounts receivable for authorized write-offs. Recurring entries in the sales journal. Altered shipping documents and invoices.

Answer 96

Altered shipping documents and invoices.

Question 97

In the audit of accounting estimates, such as the allowance for doubtful accounts, the auditor strives to provide reasonable assurance about which of the following? All material accounting estimates have been developed properly. The estimates are reasonable. The estimates are presented in accordance with GAAP. All of the above are true.

Answer 97

All of the above are true.

Question 98

The allowance for doubtful accounts balance will not be a precise amount because of which of the following reasons? It is an accounting estimate based upon judgment. GAAP is not clear on the calculation of the allowance. It is merely a reserve that is reversed by the client as income is needed for profitable results. The precision is determined by the results of confirmation responses.

Answer 98

It is an accounting estimate based upon judgment.

Question 99

To determine whether any accounts receivable are pledged or assigned to others, the auditor would most likely perform which of the following procedures? Examine subsequent collections. Test a sample of transactions to the general ledger. Review loan agreements and board of directors' meeting minutes. Derive an independent estimate of the allowance and compare it to pledged assets.

Answer 99

Review loan agreements and board of directors' meeting minutes.

Question 100

Which of the following criteria must be met in order to recognize revenue in the current accounting period? Goods or services have been transferred to the customer. The transaction price has been determined. Collectability is reasonably assured. All of the above.

Answer 100

All of the above. ## Footnote Revenue Recognition Criteria 1. Parties have approved it. 2. Goods and services are clearly identified. 3. Payment terms are spelled out. 4. There is commercial value to the contract. 5. It is probable that the client will collect the payment.

Question 101

Management has been found involved in many fraudulent schemes; a common one is “channel stuffing.” What does “channel stuffing” involve? Overly complex transactions. Growth through stock acquisitions. Shipment of goods not ordered. Management compensation schemes.

Answer 101

Shipment of goods not ordered. ## Footnote To detect channel stuffing, analysts and investors may look for red flags, such as: A sudden and unexplained increase in a company's sales or revenues that is not supported by market conditions or other external factors.

Question 102

Which of the following is not a form of ratio analysis? Turnover of receivables. Monthly sales analysis compared with past years. Gross margin analysis. Sales in last month to total sales.

Answer 102

Monthly sales analysis compared with past years. ## Footnote Trend analysis

Question 103

Sources of audit planning information may come from which of the following? Knowledge of client’s business and industry. Assessment of risk of material misstatement. Results of analytical procedures. All of the above.

Answer 103

All of the above.

Question 104

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales? Trace bill of lading to sales invoice and sales journal. Confirm balances of unpaid invoices with customers. Examine subsequent collections. Scan sales journal for duplicate entries.

Answer 104

Trace bill of lading to sales invoice and sales journal. ## Footnote This addresses the completeness assertion.

Question 105

Substantive tests of the revenue cycle typically do not provide evidence of which of the following? Sales transactions exist and are properly valued. Accounts receivable exist. The balance in the allowance account is correct. Fraudulent transactions are not included in the financial statements.

Answer 105

The balance in the allowance account is correct.

Question 106

A sample of positive confirmations is mailed for material accounts receivable balances. Frequently there is a lack of response. Which of the following is not an acceptable alternative procedure? Reviewing collections on the account subsequent to the confirmation date. Inquiry of management. Mailing second and third confirmations. Examination of supporting documents.

Answer 106

Inquiry of management.