When an Auditor Tests to Determine If All Existing Accounts

question 24

Multiple Choice

When an auditor tests to determine if all existing accounts receivable are included in the aged trial balance,

• A) they cannot rely on the self-balancing nature of the accounts receivable master file.
• B) if all sales to a customer are omitted from the sales journal, it is easy to uncover the understatement of accounts receivable by tests of details of balances.
• C) auditors rarely send accounts receivable confirmations to customers with zero balances.
• D) unrecorded sales to a new customer are easy to identify for confirmation because that customer is included in the accounts receivable master file.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Capital Expenditures

Money spent by a firm on buying or improving hard assets such as land, factories, or equipment.

Revenue Expenditures

Expenses that are immediately charged against revenues in the same accounting period, generally related to the maintenance and repair of fixed assets or operating expenses.

Accounting System

A methodical procedure of recording, measuring, and communicating financial information for decision making in business.