Question 1

What is the nature of a sale under refund rights?

Accepted Answer

A) The sale is made with the right to return the goods for a full refund, even if the goods are not defective. 
B) The sale is made with the right to return the goods for a full refund, if the goods are defective. 
C) The sale is made with no right to return the goods for a refund, even if the goods are defective. 
D) The sale is made with no right to return the goods for a refund, even if the goods are not defective. 
A) The sale is made with the right to return the goods for a full refund, even if the goods are not defective. 
B) The sale is made with the right to return the goods for a full refund, if the goods are defective. 
C) The sale is made with no right to return the goods for a refund, even if the goods are defective. 
D) The sale is made with no right to return the goods for a refund, even if the goods are not defective. A

Question 2

The financial records of the Murray Company show that Mr.Donaldson owes $4,100 on an account receivable.An independent audit is being carried out and the auditors send a positive confirmation to Mr.Donaldson.What is the most likely reason as to why a positive confirmation rather than a negative confirmation was used here?

Accepted Answer

The inherent risk was high for accounts receivable with this audit.

Question 3

PCAOB AS 2310, The Confirmation Process and AU-C 505 state there is a presumption that the auditor will request the confirmation of receivables during an audit unless there are special conditions.Which of the following are among these conditions?

Accepted Answer

A) Accounts receivable are immaterial to the financial statements. 
B) The use of confirmations would be ineffective as an audit procedure. 
C) The auditor's assessed level of risk of material misstatement at the relevant assertion level is high. 
D) No other planned substantive procedures address the assessed risk. 
A) Accounts receivable are immaterial to the financial statements. 
B) The use of confirmations would be ineffective as an audit procedure. 
C) The auditor's assessed level of risk of material misstatement at the relevant assertion level is high. 
D) No other planned substantive procedures address the assessed risk. A, B,

Question 4

As an important control for the occurrence assertion related to sales, the computer starts with the population of daily sales invoices and develops a one for one match with underlying shipping documents to ensure that each sales invoice is supported by a ________.

Accepted Answer

A) bill of lading 
B) packing slip 
C) sales order 
D) sales invoice 
A) bill of lading 
B) packing slip 
C) sales order 
D) sales invoice

Question 5

A debit memo is a form stating the particulars of a credit to accounts receivable, including the specific items returned, prices, and amount credited to a customer's account.

Accepted Answer

A) True 
 B)False

Question 6

An example of a sales-related factor that would decrease inherent risk would be ________.

Accepted Answer

A) complicated revenue recognition policies 
B) lax oversight of management by the board of directors 
C) nominal legal compliance issues when making and collecting sales 
D) existence of excessive sales goals/targets 
A) complicated revenue recognition policies 
B) lax oversight of management by the board of directors 
C) nominal legal compliance issues when making and collecting sales 
D) existence of excessive sales goals/targets

Question 7

Understanding how the entity earns and recognizes revenue assists the auditor in ________.

Accepted Answer

A) determining control risk related to accounts payable 
B) discussing the audit with the predecessor auditor 
C) developing an expectation of total revenues by understanding the client's capacity, market place, and customers 
D) developing an expectation of total revenues by understanding the capacities of the client's key competitors 
A) determining control risk related to accounts payable 
B) discussing the audit with the predecessor auditor 
C) developing an expectation of total revenues by understanding the client's capacity, market place, and customers 
D) developing an expectation of total revenues by understanding the capacities of the client's key competitors

Question 8

Which of the following provides the basis for recording a sale in the sales journal?

Accepted Answer

A) Sales invoice 
B) Packing slip 
C) Bill of lading 
D) Master price file 
A) Sales invoice 
B) Packing slip 
C) Bill of lading 
D) Master price file

Question 9

Recording cash receipts involves ________.

Accepted Answer

A) journalizing cash received by a bank 
B) receiving cash over-the-counter 
C) recording cash received via mail receipt 
D) all the above 
A) journalizing cash received by a bank 
B) receiving cash over-the-counter 
C) recording cash received via mail receipt 
D) all the above

Question 10

Gross sales refers to _______.

Accepted Answer

A) total revenues before any deductions, such as deductions for sales returns and allowances. 
B) total revenues, net of deductions for sales returns and allowances 
C) earnings before interest and taxes 
D) operating income 
A) total revenues before any deductions, such as deductions for sales returns and allowances. 
B) total revenues, net of deductions for sales returns and allowances 
C) earnings before interest and taxes 
D) operating income

Question 11

In the performance of which transaction(s) does segregation of duties serve as an important internal control?

Accepted Answer

A) Cash receipts, not credit sales 
B) Credit sales, not cash receipts 
C) Both cash receipts and credit sales 
D) None of these answer choices are correct. 
A) Cash receipts, not credit sales 
B) Credit sales, not cash receipts 
C) Both cash receipts and credit sales 
D) None of these answer choices are correct.

Question 12

Explain what a lapping scheme is, provide an example of a lapping scheme, and explain what the auditor should be alert for to detect a lapping scheme.

Accepted Answer

Lapping is a common scheme to conceal th

Question 13

Confirmation of accounts receivable involves ________.

Accepted Answer

A) confirming accounts receivable with the client 
B) confirming accounts receivable with the bank 
C) direct written communication between the client's customers and the auditor 
D) direct written communication between the client's customers and the client 
A) confirming accounts receivable with the client 
B) confirming accounts receivable with the bank 
C) direct written communication between the client's customers and the auditor 
D) direct written communication between the client's customers and the client

Question 14

The market share ratio is useful in assessing the reasonableness of ________.

Accepted Answer

A) both total revenues and gross margins 
B) total revenues, not gross margins 
C) gross margins, not total revenues 
D) None of these answer choices are correct. 
A) both total revenues and gross margins 
B) total revenues, not gross margins 
C) gross margins, not total revenues 
D) None of these answer choices are correct.

Question 15

What procedures should an auditor perform for a positive confirmation that is not returned by the client's customer?

Accepted Answer

Auditors have to perform alternative pro

Question 16

The effectiveness of IT controls usually depends on both effective entity level controls and effective IT general controls.

Accepted Answer

A) True 
 B)False

Question 17

It is particularly important in growth companies for auditors to monitor the entity's collection period because any growth in sales is usually accompanied by ________.

Accepted Answer

A) growth in accounts receivables that consume operating cash 
B) increase in premium gross margins 
C) decrease in the client's collection period 
D) increase in the market share for the client's product 
A) growth in accounts receivables that consume operating cash 
B) increase in premium gross margins 
C) decrease in the client's collection period 
D) increase in the market share for the client's product

Question 18

To address the assertion of accuracy for cash receipts, which of the following are exception reports generated daily?

Accepted Answer

A) Any recorded values of cash received not supported by an underlying remittance report or cash receipts journal 
B) Inappropriate discounts taken by customers for early payment 
C) Any cash receipts recorded in the incorrect time period 
D) Any recorded cash receipts not supported by the bank remittance report 
A) Any recorded values of cash received not supported by an underlying remittance report or cash receipts journal 
B) Inappropriate discounts taken by customers for early payment 
C) Any cash receipts recorded in the incorrect time period 
D) Any recorded cash receipts not supported by the bank remittance report

Question 19

The document that serves as the basis for initiating the sales return and internal processing of the customer return by the seller is referred to as a ________.

Accepted Answer

A) credit memo 
B) receiving report 
C) sales return authorization 
D) debit memo 
A) credit memo 
B) receiving report 
C) sales return authorization 
D) debit memo

Question 20

Which of the following is a receipt from the bank showing the total amount deposited to the client's account at the bank?

Accepted Answer

A) Remittance advice 
B) Remittance report from the bank 
C) Monthly statements of receivable balances 
D) Bank deposit slip 
A) Remittance advice 
B) Remittance report from the bank 
C) Monthly statements of receivable balances 
D) Bank deposit slip

What is the nature of a sale under refund rights?

PCAOB AS 2310, The Confirmation Process and AU-C 505 state there is a presumption that the auditor will request the confirmation of receivables during an audit unless there are special conditions.Which of the following are among these conditions?

As an important control for the occurrence assertion related to sales, the computer starts with the population of daily sales invoices and develops a one for one match with underlying shipping documents to ensure that each sales invoice is supported by a ________.

A debit memo is a form stating the particulars of a credit to accounts receivable, including the specific items returned, prices, and amount credited to a customer's account.

An example of a sales-related factor that would decrease inherent risk would be ________.

Understanding how the entity earns and recognizes revenue assists the auditor in ________.

Which of the following provides the basis for recording a sale in the sales journal?

Recording cash receipts involves ________.

Gross sales refers to _______.

In the performance of which transaction(s) does segregation of duties serve as an important internal control?

Explain what a lapping scheme is, provide an example of a lapping scheme, and explain what the auditor should be alert for to detect a lapping scheme.

Confirmation of accounts receivable involves ________.

The market share ratio is useful in assessing the reasonableness of ________.

What procedures should an auditor perform for a positive confirmation that is not returned by the client's customer?

The effectiveness of IT controls usually depends on both effective entity level controls and effective IT general controls.

It is particularly important in growth companies for auditors to monitor the entity's collection period because any growth in sales is usually accompanied by ________.

To address the assertion of accuracy for cash receipts, which of the following are exception reports generated daily?

The document that serves as the basis for initiating the sales return and internal processing of the customer return by the seller is referred to as a ________.

Which of the following is a receipt from the bank showing the total amount deposited to the client's account at the bank?

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iaudit Risk and Audit Strategy

Risk Assessment Part Iiunderstanding the Client

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters

Exam 11: Auditing the Revenue Cycle

What is the nature of a sale under refund rights?

PCAOB AS 2310, The Confirmation Process and AU-C 505 state there is a presumption that the auditor will request the confirmation of receivables during an audit unless there are special conditions.Which of the following are among these conditions?

As an important control for the occurrence assertion related to sales, the computer starts with the population of daily sales invoices and develops a one for one match with underlying shipping documents to ensure that each sales invoice is supported by a ________.

A debit memo is a form stating the particulars of a credit to accounts receivable, including the specific items returned, prices, and amount credited to a customer's account.

An example of a sales-related factor that would decrease inherent risk would be ________.

Understanding how the entity earns and recognizes revenue assists the auditor in ________.

Which of the following provides the basis for recording a sale in the sales journal?

Recording cash receipts involves ________.

Gross sales refers to _______.

In the performance of which transaction(s) does segregation of duties serve as an important internal control?

Explain what a lapping scheme is, provide an example of a lapping scheme, and explain what the auditor should be alert for to detect a lapping scheme.

Confirmation of accounts receivable involves ________.

The market share ratio is useful in assessing the reasonableness of ________.

What procedures should an auditor perform for a positive confirmation that is not returned by the client's customer?

The effectiveness of IT controls usually depends on both effective entity level controls and effective IT general controls.

It is particularly important in growth companies for auditors to monitor the entity's collection period because any growth in sales is usually accompanied by ________.

To address the assertion of accuracy for cash receipts, which of the following are exception reports generated daily?

The document that serves as the basis for initiating the sales return and internal processing of the customer return by the seller is referred to as a ________.

Which of the following is a receipt from the bank showing the total amount deposited to the client's account at the bank?

Introduction and Overview of Audit and Assurance

Professionalism, Ethics and Legal Liability

Risk Assessment Part Iaudit Risk and Audit Strategy

Risk Assessment Part Iiunderstanding the Client

Audit Evidence

Understanding of the Clients System of Internal Controls

Data Analyticsoverview and Application

Risk Responseperforming Tests of Controls

Risk Responseperforming Substantive Procedures

Risk Responseaudit Sampling for Substantive Testing

Auditing the Purchases Cycle and Payroll Cycle

Auditing Cash, Inventory, Investing and Financing Activities

Completing the Audit

Reporting on the Audit

Filters