Reference no: EM132823393

Problem 1: As part of audit planning, you have calculated accounts receivable turnover for the last five years and compared it to industry averages. Your client's accounts receivable has decreased by about 1.25 times in the current year, while the industry rate has improved. One possible cause of this lowered accounts receivable turnover is

A) higher cost of goods sold.

B) increased bad debt expenses.

C) fictitious revenue.

D) fictitious expenses.

Problem 2: There are two important assumptions that underly the auditor's use of external confirmations. The first is that the person returning the confirmation is independent of the company and so will provide an unbiased response. The second is that

A) only authorized employees of the company have prepared the response.

B) the person completing the response has carefully checked the data being confirmed.

C) the respondent has not been coerced or bribed to respond to the confirmation.

D) adequate controls exist at the client company to prevent unauthorized responses.