Exam 12: Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

The auditor traces items from the journals back to the source documents in order to satisfy the:

Proper accounting requires that an account receivable must be written off by the client when:

State the six specific transaction- related audit objectives for cash receipts and describe one common substantive test of transactions for each objective.

The most important aspect(s) of the billing function is/are:

A bill of lading is a written contract of the receipt and shipment of goods.

The appropriate test of controls for separation of duties is:

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

Procedures to test whether sales are accurately recorded are normally:

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

Tracing an entry from the sales journal to the master file is a posting and summarisation procedure.

Before goods are shipped on account, a properly authorised person must:

Violations of the completeness objective for sales are of greater concern to the auditor than violations of the existence objective.

An audit procedure which compared the name, amount and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting:

An important purpose of a remittance advice is to improve control over the custody of assets.

The auditor's primary concern in the audit of the write- off of individual uncollectible accounts receivable is the possibility of embezzlement.

A document prepared by the seller for recording the description, quantity and related information for goods ordered by a customer is a:

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with Australian accounting standards.

Most companies recognise sales when goods are ordered from a credit- worthy customer.

Explain what 'lapping' means and discuss the internal control deficiency that allows it to occur. Also discuss the procedures the auditor can perform to detect lapping.

When testing the existence objective for sales, the direction of tests should be from the journals back to supporting documents.