Principles of Auditing & Other Assurance Services Chapter 11 Exam Bank Solution Manual (Graded A+)
Aged trial balance - Answers A listing of individual customers' accounts classified by the number of days
subsequent to billing, that is, by age. A preliminary step in estimating the collectibility of accounts
receivable.
Bill and hold transactions - Answers Transactions in which sales of merchandise are billed to customers
prior to delivery, with the goods being held by the seller. These transactions may overstate revenues
and net income if they do not meet specific requirements for recognition as sales.
Channel stuffing - Answers A marketing practice that suppliers sometimes use to boost sales by inducing
customers to buy substantially more inventory than they can promptly resell. Channel stuffing without
appropriate provision for sales returns is an example of booking tomorrow's revenue today in order to
window dress the financial statements.
Confirmation request - Answers A request sent to a confirming party requesting that the confirming
party consider the accuracy of information included in that request. A confirmation request may take
one of two forms: positive confirmation request and negative confirmation request.
Confirming party - Answers The individual who responds to the confirmation request. Responses to
confirmation requests provide more relevant and reliable audit evidence when the confirmation
requests are sent to confirming parties who the auditors believe are knowledgeable about the
information to be confirmed. For example, an individual in accounts payable may provide more relevant
and reliable audit evidence with respect to a client's receivable balance than an individual who has no
direct access to accounts payable records.
External confirmation - Answers Audit evidence obtained by the auditors as a direct written response to
the auditors from a third party (the confirming party) in paper form or by electronic or other medium
(e.g., the auditors' direct access to information held by a third party).
Interim audit work - Answers Those audit procedures that are performed before the balance sheet date.
The purpose is to facilitate earlier issuance of the audit report and to spread the auditors' work more
uniformly over the year.
Negative confirmation request - Answers A request that the confirming party respond directly to the
auditors indicating where the confirming party disagrees with the information in the request.
Pledging of receivables - Answers To assign to a bank, factor, finance company, or other lender an
exclusive claim against accounts receivable as security for a debt.
Positive confirmation request - Answers A request that the confirming party respond directly to the
auditor providing the requested information or indicating whether the confirming party agrees or
disagrees with the information in the request.
Aged trial balance - Answers A listing of individual customers' accounts classified by the number of days
subsequent to billing, that is, by age. A preliminary step in estimating the collectibility of accounts
receivable.
Bill and hold transactions - Answers Transactions in which sales of merchandise are billed to customers
prior to delivery, with the goods being held by the seller. These transactions may overstate revenues
and net income if they do not meet specific requirements for recognition as sales.
Channel stuffing - Answers A marketing practice that suppliers sometimes use to boost sales by inducing
customers to buy substantially more inventory than they can promptly resell. Channel stuffing without
appropriate provision for sales returns is an example of booking tomorrow's revenue today in order to
window dress the financial statements.
Confirmation request - Answers A request sent to a confirming party requesting that the confirming
party consider the accuracy of information included in that request. A confirmation request may take
one of two forms: positive confirmation request and negative confirmation request.
Confirming party - Answers The individual who responds to the confirmation request. Responses to
confirmation requests provide more relevant and reliable audit evidence when the confirmation
requests are sent to confirming parties who the auditors believe are knowledgeable about the
information to be confirmed. For example, an individual in accounts payable may provide more relevant
and reliable audit evidence with respect to a client's receivable balance than an individual who has no
direct access to accounts payable records.
External confirmation - Answers Audit evidence obtained by the auditors as a direct written response to
the auditors from a third party (the confirming party) in paper form or by electronic or other medium
(e.g., the auditors' direct access to information held by a third party).
Interim audit work - Answers Those audit procedures that are performed before the balance sheet date.
The purpose is to facilitate earlier issuance of the audit report and to spread the auditors' work more
uniformly over the year.
Negative confirmation request - Answers A request that the confirming party respond directly to the
auditors indicating where the confirming party disagrees with the information in the request.
Pledging of receivables - Answers To assign to a bank, factor, finance company, or other lender an
exclusive claim against accounts receivable as security for a debt.
Positive confirmation request - Answers A request that the confirming party respond directly to the
auditor providing the requested information or indicating whether the confirming party agrees or
disagrees with the information in the request.
