Exam 14: Auditing the Revenue Cycle

In a credit-merchandising environment, which of the following documents usually initiates the activity in the sales cycle?

It is necessary to confirm the pledging of receivables with customers.

Once an entity sells its receivables, it no longer needs to keep a documentary record of receivables that have been sold.

Confirmations are usually returned directly to the client.

In a credit-merchandising environment, when a customer has been "billed," it means which of the following documents has been prepared?

The accounts receivable generated by credit sales transactions are nearly always material to the balance sheet.

An auditor who does not request confirmation of receivables should document in the working papers how he or she overcame the presumption that confirmations should be requested.

The auditor must be knowledgeable about the statement presentation and disclosure requirements for accounts receivable and sales under GAAP.

To enhance controls in the credit sales area, the warehouse should be instructed not to release goods until:

Inherent risk tends to be low in the revenue cycle.

Credit approval is given by the credit department in accordance with management's credit policies and authorized credit limits for each customer.

Which of the following accounts in a merchandising company is affected by both the revenue cycle and another cycle?

Monitoring provides management with feedback as to whether external control pertaining to revenue cycle transactions and balances are operating as intended.

After making the deposit, the daily cash summary and the validated deposit slip should be forwarded by the cashier directly to:

The summary of the results from confirming accounts receivable contained in the auditor's working papers would not normally provide statistical data on the:

In a credit-merchandising environment, which of the following documents serves as the basis for internal processing of an order?

Following are a number of potential misstatements that might occur in the revenue cycle. Also listed are a number of necessary controls for this cycle. REQUIRED: For each potential misstatement, indicate, using the assigned letter, the necessary control that would most likely prevent or detect the misstatement.

The audit report should indicate each account selected for confirmation, the results obtained from each request, and cross-references to the actual confirmation responses.

If receivables are growing faster than sales, it may be an indication that the company is accomplishing sales growth by taking on increased credit risk.

The misappropriation of cash could be concealed by an employee who correspondingly understates cash discounts.