Question 1

For companies that sell goods or services on account, if revenue is recognized prematurely, what would be overstated: sales or accounts receivable?

Accepted Answer

A) Both sales and accounts receivable 
B) Sales, not accounts receivable 
C) Accounts receivable, not sales 
D) Neither sales nor accounts receivable 
A) Both sales and accounts receivable 
B) Sales, not accounts receivable 
C) Accounts receivable, not sales 
D) Neither sales nor accounts receivable

Question 2

The process used for developing an audit strategy for various assertions begins with _________.

Accepted Answer

A) understanding the flow of transactions in a given transaction cycle 
B) identifying what can go wrong from initiating the transaction to the recording in the general ledger 
C) assessing whether controls exist to mitigate what can go wrong 
D) identifying relevant controls, performing tests of controls, and evaluating results 
A) understanding the flow of transactions in a given transaction cycle 
B) identifying what can go wrong from initiating the transaction to the recording in the general ledger 
C) assessing whether controls exist to mitigate what can go wrong 
D) identifying relevant controls, performing tests of controls, and evaluating results

Question 3

With respect to understanding the client's revenue process, it is particularly important that the auditor ________.

Accepted Answer

A) makes some preliminary inquiries with the client's attorney 
B) be knowledgeable about the entity, how the entity earns revenues, and particular revenue recognition issues that may be relevant to the entity 
C) examines other firms within the client's industry to determine acceptable practices 
D) uses accounting standards as an optional guide to determining what the client should be recording 
A) makes some preliminary inquiries with the client's attorney 
B) be knowledgeable about the entity, how the entity earns revenues, and particular revenue recognition issues that may be relevant to the entity 
C) examines other firms within the client's industry to determine acceptable practices 
D) uses accounting standards as an optional guide to determining what the client should be recording

Question 4

In which of the following cases are revenue transaction vouching tests performed more extensively?

Accepted Answer

A) When the applicable level of detection risk to be achieved is low 
B) When confirmation procedures are not practicable 
C) When used to supplement confirmation procedures 
D) When confirming receivables and the related follow-up procedures 
A) When the applicable level of detection risk to be achieved is low 
B) When confirmation procedures are not practicable 
C) When used to supplement confirmation procedures 
D) When confirming receivables and the related follow-up procedures

Question 5

With respect to performing analytical procedures to understand total revenue, the auditor should understand _______.

Accepted Answer

A) revenue recognition methods of all firms within the industry 
B) how the firm relates its cost of goods sold to revenue recognition 
C) the entity's capacity, the maximum volume of sales that it could generate if it fully utilized its facilities and employees to manufacture and deliver products and services 
D) how the client firm handles depreciation entries related to contra-revenue accounts 
A) revenue recognition methods of all firms within the industry 
B) how the firm relates its cost of goods sold to revenue recognition 
C) the entity's capacity, the maximum volume of sales that it could generate if it fully utilized its facilities and employees to manufacture and deliver products and services 
D) how the client firm handles depreciation entries related to contra-revenue accounts

Question 6

An auditor's use of analytical procedures ________.

Accepted Answer

A) should be the same for every audit client, for reasons of uniformity 
B) may be tailored to the particular client and the industry in which the client operates 
C) is not required if an auditor has assessed control risk as low 
D) are designed to help the auditor provide absolute assurance 
A) should be the same for every audit client, for reasons of uniformity 
B) may be tailored to the particular client and the industry in which the client operates 
C) is not required if an auditor has assessed control risk as low 
D) are designed to help the auditor provide absolute assurance

Question 7

The auditor often makes inquiries of personnel responsible for clearing exceptions ________.

Accepted Answer

A) to determine that all exceptions have been automatically approved 
B) to ensure that no employees that handle exception reports are lapping 
C) to determine their awareness of the types of misstatements that might appear on exception reports 
D) to ensure that it is always one type of misstatement that will appear on the report 
A) to determine that all exceptions have been automatically approved 
B) to ensure that no employees that handle exception reports are lapping 
C) to determine their awareness of the types of misstatements that might appear on exception reports 
D) to ensure that it is always one type of misstatement that will appear on the report

Question 8

In the initial procedures of the audit program for substantive tests of revenue cycle assertions, to determine that the trial balance is an accurate and complete representation of the underlying accounting records, the auditor should compare a sample of the customer balances shown in the ________ with that in the _________ .

Accepted Answer

A) aged trial balance; subsidiary ledger 
B) subsidiary ledger; aged trial balance 
C) general ledger control account; allowance account 
D) sales journal; general ledger control account 
A) aged trial balance; subsidiary ledger 
B) subsidiary ledger; aged trial balance 
C) general ledger control account; allowance account 
D) sales journal; general ledger control account

Question 9

Public company auditors test controls in order to ________.

Accepted Answer

A) determine if they should be eliminated 
B) support an opinion on internal controls 
C) decide if responsibility for internal control should be reassigned from management to the internal auditors 
D) determine their audit opinion without regard to substantive testing 
A) determine if they should be eliminated 
B) support an opinion on internal controls 
C) decide if responsibility for internal control should be reassigned from management to the internal auditors 
D) determine their audit opinion without regard to substantive testing

Question 10

In order to test programmed application controls in the revenue cycle and determine whether expected results appear on exception reports, an auditor might submit a/an _________ (choose two options).

Accepted Answer

A) missing customer code 
B) order that exceeds a customer's credit limit 
C) valid product code 
D) invoice quantity matching quantity on shipping documents 
A) missing customer code 
B) order that exceeds a customer's credit limit 
C) valid product code 
D) invoice quantity matching quantity on shipping documents

Question 11

An analytical procedure related to substantive testing of revenue would be ________.

Accepted Answer

A) developing an understanding of the client's system of internal control 
B) ensuring that all efficiency audits conducted by the internal audit function are properly planned 
C) to check revenue and the related accounts payable accounts on a sample basis 
D) to analyze ratio results relative to expectations based on prior years 
A) developing an understanding of the client's system of internal control 
B) ensuring that all efficiency audits conducted by the internal audit function are properly planned 
C) to check revenue and the related accounts payable accounts on a sample basis 
D) to analyze ratio results relative to expectations based on prior years

Question 12

What are the classes of transactions in the revenue cycle included for a merchandising company?

Accepted Answer

A) Credit sales 
B) Cash receipts 
C) Sale adjustments 
D) Gross sales 
A) Credit sales 
B) Cash receipts 
C) Sale adjustments 
D) Gross sales

Question 13

If receivables are growing faster than sales, it may be an indication that the company is _________.

Accepted Answer

A) accomplishing sales growth by taking on increased credit risk 
B) accomplishing sales growth by taking steps to reduce credit risk 
C) slowing down sales growth by taking on increased credit risk 
D) slowing down sales growth by taking steps to reduce credit risk 
A) accomplishing sales growth by taking on increased credit risk 
B) accomplishing sales growth by taking steps to reduce credit risk 
C) slowing down sales growth by taking on increased credit risk 
D) slowing down sales growth by taking steps to reduce credit risk

Question 14

A common scheme to conceal the misappropriation of cash receipts ________.

Accepted Answer

A) is known as lapping 
B) is known as kiting 
C) is usually committed by senior management and members of the board of directors 
D) should be handled by the internal audit function, not the external auditors 
A) is known as lapping 
B) is known as kiting 
C) is usually committed by senior management and members of the board of directors 
D) should be handled by the internal audit function, not the external auditors

Question 15

Which of the following is an act of fraud?

Accepted Answer

A) Lapping 
B) Lockbox 
C) Walkthrough 
D) Disclosure 
A) Lapping 
B) Lockbox 
C) Walkthrough 
D) Disclosure

Question 16

The accounts receivable growth to sales growth ratio = _________.

Accepted Answer

A) ((Accounts Receivable t ÷ Accounts Receivable t − 1) - 1) ÷ ((Sales t ÷ Sales t −1) - 1) 
B) ((Accounts Receivable t ÷ Accounts Receivable t − 1) + 1) ÷ ((Sales t ÷ Sales t − 1) + 1) 
C) ((Accounts Receivable t ÷ Accounts Receivable t + 1) - 1) ÷ ((Sales t ÷ Sales t + 1) - 1) 
D) ((Accounts Receivable t ÷ Accounts Receivable t + 1) + 1) ÷ ((Sales t ÷ Sales t + 1) + 1) 
A) ((Accounts Receivable t ÷ Accounts Receivable t − 1) - 1) ÷ ((Sales t ÷ Sales t −1) - 1) 
B) ((Accounts Receivable t ÷ Accounts Receivable t − 1) + 1) ÷ ((Sales t ÷ Sales t − 1) + 1) 
C) ((Accounts Receivable t ÷ Accounts Receivable t + 1) - 1) ÷ ((Sales t ÷ Sales t + 1) - 1) 
D) ((Accounts Receivable t ÷ Accounts Receivable t + 1) + 1) ÷ ((Sales t ÷ Sales t + 1) + 1)

Question 17

The purpose of a disclosure committee _______.

Accepted Answer

A) is to supervise the internal audit function 
B) is to handle all communications with firm attorneys 
C) is to work with the CFO or controller to review disclosures 
D) is to ensure that the firm receives a 'clean' audit opinion 
A) is to supervise the internal audit function 
B) is to handle all communications with firm attorneys 
C) is to work with the CFO or controller to review disclosures 
D) is to ensure that the firm receives a 'clean' audit opinion

Question 18

There is significant interaction between cash receipt transactions and accounts receivable because _______.

Accepted Answer

A) the creation of an account receivable indicates receipt of cash 
B) a misstatement of cash receipts will result in a misstatement of accounts receivable. 
C) a misstatement of cash receipts will result in a misstatement of interest payments 
D) the settlement of an account receivable will result in a decrease to the cash account 
A) the creation of an account receivable indicates receipt of cash 
B) a misstatement of cash receipts will result in a misstatement of accounts receivable. 
C) a misstatement of cash receipts will result in a misstatement of interest payments 
D) the settlement of an account receivable will result in a decrease to the cash account

Question 19

A walkthrough is important as _________.

Accepted Answer

A) different companies often have different documents and transaction flows 
B) the volume of routine transactions in the revenue cycle is very high 
C) companies with dominant market shares often obtain premium gross margins 
D) any growth in sales is usually accompanied by receivable growth that consumes operating cash 
A) different companies often have different documents and transaction flows 
B) the volume of routine transactions in the revenue cycle is very high 
C) companies with dominant market shares often obtain premium gross margins 
D) any growth in sales is usually accompanied by receivable growth that consumes operating cash

Question 20

Which of the following is a control for the completeness (of cash receipts assertion)?

Accepted Answer

A) The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report. 
B) The computer starts with the population of daily cash receipts recorded in the daily remittance report and develops a one for one match with the underlying bank remittance report. 
C) The computer starts with the population of daily cash receipts recorded in the daily remittance report and it compares the dollar amount of each recorded cash receipt with the underlying bank remittance report. 
D) The computer starts with the population of daily cash receipts recorded in the daily remittance report and compares the date recorded in the daily remittance report with the date received and deposited by the bank. 
A) The computer compares each item on the underlying information in the bank remittance report to develop a one for one match with recorded cash receipts in the daily remittance report. 
B) The computer starts with the population of daily cash receipts recorded in the daily remittance report and develops a one for one match with the underlying bank remittance report. 
C) The computer starts with the population of daily cash receipts recorded in the daily remittance report and it compares the dollar amount of each recorded cash receipt with the underlying bank remittance report. 
D) The computer starts with the population of daily cash receipts recorded in the daily remittance report and compares the date recorded in the daily remittance report with the date received and deposited by the bank.

For companies that sell goods or services on account, if revenue is recognized prematurely, what would be overstated: sales or accounts receivable?

The process used for developing an audit strategy for various assertions begins with _________.

With respect to understanding the client's revenue process, it is particularly important that the auditor ________.

In which of the following cases are revenue transaction vouching tests performed more extensively?

With respect to performing analytical procedures to understand total revenue, the auditor should understand _______.

An auditor's use of analytical procedures ________.

The auditor often makes inquiries of personnel responsible for clearing exceptions ________.

Public company auditors test controls in order to ________.

In order to test programmed application controls in the revenue cycle and determine whether expected results appear on exception reports, an auditor might submit a/an _________ (choose two options).

An analytical procedure related to substantive testing of revenue would be ________.

What are the classes of transactions in the revenue cycle included for a merchandising company?

If receivables are growing faster than sales, it may be an indication that the company is _________.

A common scheme to conceal the misappropriation of cash receipts ________.

Which of the following is an act of fraud?

The accounts receivable growth to sales growth ratio = _________.

The purpose of a disclosure committee _______.

There is significant interaction between cash receipt transactions and accounts receivable because _______.

A walkthrough is important as _________.

Which of the following is a control for the completeness (of cash receipts assertion)?

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

For companies that sell goods or services on account, if revenue is recognized prematurely, what would be overstated: sales or accounts receivable?

The process used for developing an audit strategy for various assertions begins with _________.

With respect to understanding the client's revenue process, it is particularly important that the auditor ________.

In which of the following cases are revenue transaction vouching tests performed more extensively?

With respect to performing analytical procedures to understand total revenue, the auditor should understand _______.

An auditor's use of analytical procedures ________.

The auditor often makes inquiries of personnel responsible for clearing exceptions ________.

Public company auditors test controls in order to ________.

In order to test programmed application controls in the revenue cycle and determine whether expected results appear on exception reports, an auditor might submit a/an _________ (choose two options).

An analytical procedure related to substantive testing of revenue would be ________.

What are the classes of transactions in the revenue cycle included for a merchandising company?

If receivables are growing faster than sales, it may be an indication that the company is _________.

A common scheme to conceal the misappropriation of cash receipts ________.

Which of the following is an act of fraud?

The accounts receivable growth to sales growth ratio = _________.

The purpose of a disclosure committee _______.

There is significant interaction between cash receipt transactions and accounts receivable because _______.

A walkthrough is important as _________.

Which of the following is a control for the completeness (of cash receipts assertion)?

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