AICPA Exam CPA-Auditing 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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17 days ago

I think option C would be effective because it separates the credit-granting function from sales.

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