AICPA CPA-Auditing Exam - Topic 3 Question 88 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 88
Topic #: 3

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

AEmployees responsible for authorizing sales and bad debt write-offs are denied access to cash.

BShipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.

CEmployees involved in the credit-granting function are separated from the sales function.

DSubsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. When obtaining an understanding of an entity's internal control in a financial statement audit, an auditor is not obligated to search for significant deficiencies in the operation of internal control.

Choice 'a' is incorrect. In order to determine the nature, timing and extent of tests to be performed, an auditor must determine whether the control activities have been implemented.

Choice 'b' is incorrect. An auditor is required to perform procedures to confirm his/her understanding of the internal control systems' design, and to determine whether relevant controls have been implemented.

Choice 'c' is incorrect. An auditor is required to document his or her understanding of the entity's internal control components, even if he or she intends to use a substantive approach.

by Delila at May 19, 2024, 08:34 AM

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Bernardine

3 months ago

Totally agree with C! It really helps keep things in check.

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Rodrigo

3 months ago

Wait, are we sure D really helps? Seems a bit too indirect to me.

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Frederica

3 months ago

A is about cash access, but it doesn't really tackle bad debt directly.

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Ilda

4 months ago

I disagree, I think B is more effective for preventing bad debts.

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Werner

4 months ago

Option C seems solid, separating credit from sales is key.

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Brandee

4 months ago

I definitely recall discussing the risks of allowing sales and credit functions to overlap. Option C seems like the most effective control to mitigate those risks.

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Cassie

4 months ago

I feel like option D could be relevant too, but I’m not confident. Reconciliation seems important, but I’m not sure how it directly addresses the bad debt issue.

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Alishia

4 months ago

I'm not entirely sure, but I remember a practice question that discussed the importance of matching documents. Maybe option B is also a good choice since it involves oversight.

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Sharika

5 months ago

I think option C makes sense because separating credit-granting from sales could help reduce pressure on salespeople to push for more sales without considering credit risk.

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Martina

5 months ago

I'm feeling pretty confident about this one. Segregation of duties is a classic control to prevent this kind of issue.

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Odette

5 months ago

Okay, I think I've got this. The key is separating the sales and credit functions to create checks and balances.

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Vinnie

5 months ago

Hmm, I'm a bit unsure about this one. I'll have to review the material on internal controls again.

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Fletcher

5 months ago

This seems like a tricky question. I'll need to think through the different control options carefully.

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Dorthy

5 months ago

Whoa, lots of options here. I'll need to really analyze each one to determine the most effective control.

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Walker

5 months ago

Hmm, I'm a bit unsure about this one. I'll need to review my notes on Intrusion Prevention to make sure I understand the differences between the options.

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Santos

5 months ago

I've worked with WebLogic patching before, so I think I've got this. The key is downloading the patches from My Oracle Support and then using the right tool to apply them.

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Carin

9 months ago

Option E: Hire sales reps who are also stand-up Carins - they'll be too busy telling jokes to worry about maximizing sales volume!

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Frankie

10 months ago

If I were a sales rep, I'd be tempted to go with Option A - get that cash in hand and worry about the write-offs later! But I guess that's why they call it 'internal control'.

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Taryn

8 months ago

Yeah, separating credit-granting from sales could definitely help maintain a balance.

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Michel

8 months ago

I agree, maybe Option C would be a better choice to prevent bad debt write-offs.

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Marnie

9 months ago

Option A sounds risky, we need to think long-term.

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Bev

10 months ago

Option D also sounds like a good control, as reconciling the subsidiary accounts receivable to the control account can help identify any discrepancies or unauthorized write-offs.

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Dottie

8 months ago

C) Employees involved in the credit-granting function are separated from the sales function.

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Brice

8 months ago

B) Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.

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Penney

9 months ago

A) Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.

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Jaclyn

11 months ago

I agree with Lynelle. Keeping the credit and sales roles distinct is a smart way to prevent conflicts of interest and ensure proper oversight.

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Francisca

9 months ago

C) Employees involved in the credit-granting function are separated from the sales function.

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Edelmira

9 months ago

A) Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.

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Clemencia

9 months ago

D) Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

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Jacob

9 months ago

C) Employees involved in the credit-granting function are separated from the sales function.

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Tom

10 months ago

B) Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.

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Nikita

10 months ago

A) Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.

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Lynelle

11 months ago

Option C seems the most effective in reducing the tendency of sales personnel to prioritize sales volume over bad debt management. Separating the credit-granting and sales functions can help maintain proper checks and balances.

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