1-3The Auditor Determines That Both of the Following Objectives Will

question 68

Essay

1-3.The auditor determines that both of the following objectives will be part of the audit of Anthony Company.For each of the following audit objectives,select the substantive test that would most likely provide support for the objective.A substantive test may be used once,more than once,or not at all.
Substantive Tests:
- Perform tests of subsequent cash receipts after the balance sheet date.
- Review and assess an aging schedule of accounts receivable.
- Read the financial statements (including notes)for completeness.
$$\begin{array} { | l | l | l | } \hline& \text { Objective } & \text { Substantive Tests } \\\hline 1& \text { Verify existence of accountsreceivable. } & \\\hline 2 & \begin{array} { l } \text { Determine that accounts receivable are } \\\text { valued at their net realizable value. }\end{array} & \\\hline 3 & \begin{array} { l } \text { Determine that proper receivable } \\\text { disclosures are presented. }\end{array} & \\\hline\end{array}$$
4.The existence of which of the following is most likely to increase audit risk in an audit client?
Anthony Company was started as a local family business and has received additional funding over the years from several investors.
A new CFO is redesigning Anthony's accounting policies and procedures.
Anthony Company consists of three core business operations: product sales in its retail store,product sales to food and specialty stores,and food services.
The company experienced significant sales growth during its history and continues to expand its product offerings and market reach.
5.Which of the following is most likely to increase days' sales in accounts receivable at the end of the year for Anthony Company?
Credit terms were restricted on several large accounts during the current year.
Operating expenses increased at a higher rate than sales revenue.
Sales revenue increased at a higher rate than operating expenses.
A smaller percentage of sales occurred during the last month of the year,as compared to the prior year.
A larger percentage of sales occurred during the last month of the year,as compared to the prior year.

---

Definitions:

Upstream

In the context of oil and gas, it refers to exploration and production activities; in supply chain management, it relates to the procurement of raw materials.

Downstream

In business, refers to processes or activities that occur toward the end of a supply chain, often associated with the distribution and sale of finished products.

Equity Method

This involves documenting investments when the investor holds substantial influence over the entity being invested in, without having total control.