Returns of Positive Confirmation Requests for Accounts Receivable Were Very

question 73

Multiple Choice

Returns of positive confirmation requests for accounts receivable were very poor.As an alternative procedure, the auditor decided to check subsequent collections.The auditor had satisfied himself that the client satisfactorily listed the customer name next to each cheque listed on the deposit slip; hence, he decided that for each customer from whom a confirmation was not received, he would add all amounts shown for that customer on each validated deposit slip for the two months following the balance sheet date.The major fallacy in the auditor's procedure is that:

• A) the deposit slip would not be received directly by the auditor as a confirmation would be.
• B) checking of subsequent collections is not an accepted alternative auditing procedure for confirmation of accounts receivable.
• C) a customer may not have made a payment during the two-month period.
• D) by looking only at the deposit slip, the auditor would not know if the payment was for the receivable at the balance sheet date or for a subsequent transaction.

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Definitions:

P Chart

A type of control chart used for monitoring the proportion of defective items in a process over time.

Upper and Lower Control Limits

Defined in quality control, these are the thresholds set for process performance monitoring to signal when a process is out of control.

Sample Proportion

The fraction or percentage of the sample that reflects a particular trait or attribute of interest.

Central Limit Theorem

A statistical theory that states that, given a sufficiently large sample size from a population with a finite level of variance, the mean of all samples from the same population will be approximately equal to the mean of the population.