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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Carin

18 days 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

23 days 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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Marnie

3 days ago

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

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Bev

25 days 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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Penney

1 days ago

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

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Jaclyn

2 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

12 days ago

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

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Edelmira

13 days ago

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

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Clemencia

13 days 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

20 days ago

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

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Tom

22 days 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

1 months ago

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

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Lynelle

2 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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