Activity 1 - audit of receivables and revenues
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.
Objective
Substantive Test
1. Verify existence of accounts receivable.
2. Determine that accounts receivable are valued at their net realizable value.
3. Determine that proper receivable disclosures are presented.
A
B
G
Selection List
A. Perform tests of subsequent cash receipts after the balance sheet date.
B. Review and assess an aging schedule of accounts receivable.
C. Compare recognized revenue to related industry statistics.
D. Tour the storage facility for inventory to determine adequacy of security controls.
E. Perform receiving cutoff procedures.
F. Review payments to vendors subsequent to year-end.
G. Read the financial statements (including notes) for completeness.
4. The existence of which of the following is most likely to increase audit risk in an audit client?
A. Anthony Company was started as a local family business and has received additional funding over the
years from several investors.
B. A new CFO is redesigning Anthony's accounting policies and procedures.
C. Anthony Company consists of three core business operations: product sales in its retail store, product
sales to food and specialty stores, and food services.
D. 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?
A. Credit terms were restricted on several large accounts during the current year.
B. Operating expenses increased at a higher rate than sales revenue.
C. Sales revenue increased at a higher rate than operating expenses.
D. A smaller percentage of sales occurred during the last month of the year, as compared to the prior
year.
E. A larger percentage of sales occurred during the last month of the year, as compared to the prior year.