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5. In class, we discussed the notion of an audit philosophy of tests of accounts for overstatement and understatement to gain audit efficiencies. Consider the following statements: I. Testing Sales for UNDERstatement, conceptually, also tests Accounts Receivable for UNDERstatement. II. Assume that company management made the following journal entry: Capital Asset (i.e. Building) Repairs and Maintenance Expense XX If the auditor tests the asset account for overstatement, then conceptually: Expenses are also tested for understatement. b. c. d. I is true; II is true. I is true; II is false. I is false; II is true. I is false; II is false. Answer 6. The accounting clerk steals a customer's check meant to pay their account balance. To remove the accounts receivable from the accounting records, the clerk writes off (debit allowance for doubtful accounts, credit accounts receivable) the customer's account. This scheme is likely to be discovered because: b. The customer will demand repayment. The customer will be told that it will be necessary to pay cash for purchases in the future since their account had been written off in the past. The clerk will forget which account was written off. C. Answer 7. An aged trial balance of accounts receivable is normally used by the auditor to evaluate the adequacy of the allowance for doubtful accounts involving accounts receivable. The company's credit terms are 2$ 10, net 30. The aged trial balance was made on December 31, year 1. The auditor reviews the work on January 30, year 2. An outstanding accounts receivable on December 31, year 1 was for a sale invoiced on November 26, year I would be classified on the aged trial balance as: a. Current. b. Past due c. More than 30 days past due. d. More than 60 days past due

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