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:

FOB Destination

A shipping term indicating that the seller is responsible for goods and shipping costs until the goods reach the buyer's specified location.

Merchandise

Goods bought for the purpose of resale at a profit.

Accounting Equation

The fundamental equation that represents the relationship among assets, liabilities, and equity of a company; Assets = Liabilities + Equity.

Income from Operations

Profit generated from a company’s regular business activities, excluding non-operating income and expenses.