Question 1

In the process of performing the audit the auditor may benchmark company performance against others in the industry.

Accepted Answer

A) True 
 B)False

Question 2

In most cases there is a lesser risk of overstatement of receivables and sales than of understatement of receivables and sales.

Accepted Answer

A) True 
 B)False

Question 3

When confirmations are returned, any material differences should be investigated by the auditor.

Accepted Answer

A) True 
 B)False

Question 4

An understanding of the revenue accounting system requires knowledge of all of the following except:

Accepted Answer

A)  how sales are initiated 
B)  how goods and services are delivered 
C)  how payables are recorded 
D)  how cash is received 
E)  how sales adjustments are made 
A)  how sales are initiated 
B)  how goods and services are delivered 
C)  how payables are recorded 
D)  how cash is received 
E)  how sales adjustments are made

Question 5

Shown below is a partial flowchart of the overview of computerized accounting operations in the revenue cycle.
   REQUIRED: Label the symbols in the partial flowchart.

Accepted Answer

The answer of Shown below is a partial flowchart of...

Question 6

In a credit merchandising organization, the best place to vest credit approval is in:

Accepted Answer

A)  accounts receivable. 
B)  the sales department. 
C)  a completely separate department. 
D)  the cashier area where receipts will eventually be sent. 
E)  the collections department. 
A)  accounts receivable. 
B)  the sales department. 
C)  a completely separate department. 
D)  the cashier area where receipts will eventually be sent. 
E)  the collections department.

Question 7

In the area of accounts receivable, it is normal to find a high assessment of inherent risk for the existence or occurrence assertion and for the valuation or allocation assertion.

Accepted Answer

A) True 
 B)False

Question 8

Standard control procedures over customer remittances received through the mail include having the mailroom personnel:

Accepted Answer

A)  forward the remittances, unopened, directly to the cashier. 
B)  open the mail, restrictively endorse the checks, and then list each remittance on a multicopy prelist. 
C)  forward the remittances, unopened, directly to the accounts receivable clerk. 
D)  open the mail, restrictively endorse the checks, then forward the remittances directly to the cashier. 
E)  open the mail, restrictively endorse the checks, then forward the remittances directly to the accounts receivable clerk. 
A)  forward the remittances, unopened, directly to the cashier. 
B)  open the mail, restrictively endorse the checks, and then list each remittance on a multicopy prelist. 
C)  forward the remittances, unopened, directly to the accounts receivable clerk. 
D)  open the mail, restrictively endorse the checks, then forward the remittances directly to the cashier. 
E)  open the mail, restrictively endorse the checks, then forward the remittances directly to the accounts receivable clerk.

Question 9

Important documents and records used in processing sales adjustments include all of the following except:

Accepted Answer

A)  sales return authorization 
B)  receiving report 
C)  debit memo 
D)  authorization for accounts receivable write-off 
E)  journal entry 
A)  sales return authorization 
B)  receiving report 
C)  debit memo 
D)  authorization for accounts receivable write-off 
E)  journal entry

Question 10

Use of modern point-of-sale terminals to record over-the-counter cash sales provides all of the following except:

Accepted Answer

A)  an immediate visual display for the customer to verify the accuracy of price and cash tendered. 
B)  a printed receipt for the customer. 
C)  an internal record of the transaction on a computer file or tape locked inside the terminal/register. 
D)  assurance that all cash sales are processed through the system. 
E)  printed control totals of the day's receipts processed on the device. 
A)  an immediate visual display for the customer to verify the accuracy of price and cash tendered. 
B)  a printed receipt for the customer. 
C)  an internal record of the transaction on a computer file or tape locked inside the terminal/register. 
D)  assurance that all cash sales are processed through the system. 
E)  printed control totals of the day's receipts processed on the device.

Question 11

The sales transaction file is a computer file of pending sales transactions.

Accepted Answer

A) True 
 B)False

Question 12

Auditors should evaluate new controls associated with all of the following except:

Accepted Answer

A)  new product lines 
B)  new sources of revenues 
C)  management's response to new accounting standards for revenue transactions 
D)  related changes in personnel 
E)  all of the above 
A)  new product lines 
B)  new sources of revenues 
C)  management's response to new accounting standards for revenue transactions 
D)  related changes in personnel 
E)  all of the above

Question 13

The possibility that an unusually heavy volume of sales returns after year-end could signal unauthorized shipments before year-end to inflate recorded sales and receivables.

Accepted Answer

A) True 
 B)False

Question 14

In general, the first department to use the "approved customer list" as an order passes through the credit sales system will be the:

Accepted Answer

A)  credit department. 
B)  shipping department. 
C)  billing department. 
D)  collections department. 
E)  sales order department. 
A)  credit department. 
B)  shipping department. 
C)  billing department. 
D)  collections department. 
E)  sales order department.

Question 15

The sales cutoff test is made as of the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not normally considered a step in the credit sales functions?

Accepted Answer

A)  accepting customer orders 
B)  approving credit 
C)  shipping the sales orders 
D)  acquiring goods to fill the order 
E)  billing customers 
A)  accepting customer orders 
B)  approving credit 
C)  shipping the sales orders 
D)  acquiring goods to fill the order 
E)  billing customers

Question 17

For each of the following computer controls identify the related potential misstatement.
1.The computer accounts for all goods shipped but not billed.
2.The computer matches the customer number on the sales invoice with the customer number on the sales order.
3.The computer matches the customer on the sales order with the customer master file.
4.The computer matches sales prices with the authorized price list and the sales order.
5.The computer matches the amount of the sales order with the credit authorization on the customer master file.
6.The computer matches the sales invoice information with underlying shipping information.
7.The computer matches all goods pulled from the inventory (perpetual) to the approved sales order.
8.The computer compares the invoice date with the accounting period when the goods were shipped.
9.The computer matches prenumbered shipping documents with the approved sales for each shipment.
10.The computer prints a report of all unfilled sales orders.

Accepted Answer

1. Some shipments may not be billed.
 2.

Question 18

It is generally more effective to evaluate total revenues against a measure of business activity than comparing current revenues with prior-year revenues.

Accepted Answer

A) True 
 B)False

Question 19

Controls over approving credit will enable management to make a more reliable estimate of the size of Allowance for Uncollectible Accounts needed. This control relates to the completeness assertion.

Accepted Answer

A) True 
 B)False

Question 20

A company policy states that annual vacations are mandatory for all employees. This policy is most important for employees who:

Accepted Answer

A)  are not bonded. 
B)  handle cash receipts. 
C)  maintain the detailed accounting records. 
D)  have access to the general ledger. 
E)  serve as inventory clerks. 
A)  are not bonded. 
B)  handle cash receipts. 
C)  maintain the detailed accounting records. 
D)  have access to the general ledger. 
E)  serve as inventory clerks.

In the process of performing the audit the auditor may benchmark company performance against others in the industry.

In most cases there is a lesser risk of overstatement of receivables and sales than of understatement of receivables and sales.

When confirmations are returned, any material differences should be investigated by the auditor.

An understanding of the revenue accounting system requires knowledge of all of the following except:

Shown below is a partial flowchart of the overview of computerized accounting operations in the revenue cycle. REQUIRED: Label the symbols in the partial flowchart.

In a credit merchandising organization, the best place to vest credit approval is in:

In the area of accounts receivable, it is normal to find a high assessment of inherent risk for the existence or occurrence assertion and for the valuation or allocation assertion.

Standard control procedures over customer remittances received through the mail include having the mailroom personnel:

Important documents and records used in processing sales adjustments include all of the following except:

Use of modern point-of-sale terminals to record over-the-counter cash sales provides all of the following except:

The sales transaction file is a computer file of pending sales transactions.

Auditors should evaluate new controls associated with all of the following except:

The possibility that an unusually heavy volume of sales returns after year-end could signal unauthorized shipments before year-end to inflate recorded sales and receivables.

In general, the first department to use the "approved customer list" as an order passes through the credit sales system will be the:

The sales cutoff test is made as of the balance sheet date.

Which of the following is not normally considered a step in the credit sales functions?

It is generally more effective to evaluate total revenues against a measure of business activity than comparing current revenues with prior-year revenues.

Controls over approving credit will enable management to make a more reliable estimate of the size of Allowance for Uncollectible Accounts needed. This control relates to the completeness assertion.

A company policy states that annual vacations are mandatory for all employees. This policy is most important for employees who:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters

Exam 14: Auditing the Revenue Cycle

In the process of performing the audit the auditor may benchmark company performance against others in the industry.

In most cases there is a lesser risk of overstatement of receivables and sales than of understatement of receivables and sales.

When confirmations are returned, any material differences should be investigated by the auditor.

An understanding of the revenue accounting system requires knowledge of all of the following except:

Shown below is a partial flowchart of the overview of computerized accounting operations in the revenue cycle. REQUIRED: Label the symbols in the partial flowchart.

In a credit merchandising organization, the best place to vest credit approval is in:

In the area of accounts receivable, it is normal to find a high assessment of inherent risk for the existence or occurrence assertion and for the valuation or allocation assertion.

Standard control procedures over customer remittances received through the mail include having the mailroom personnel:

Important documents and records used in processing sales adjustments include all of the following except:

Use of modern point-of-sale terminals to record over-the-counter cash sales provides all of the following except:

The sales transaction file is a computer file of pending sales transactions.

Auditors should evaluate new controls associated with all of the following except:

The possibility that an unusually heavy volume of sales returns after year-end could signal unauthorized shipments before year-end to inflate recorded sales and receivables.

In general, the first department to use the "approved customer list" as an order passes through the credit sales system will be the:

The sales cutoff test is made as of the balance sheet date.

Which of the following is not normally considered a step in the credit sales functions?

It is generally more effective to evaluate total revenues against a measure of business activity than comparing current revenues with prior-year revenues.

Controls over approving credit will enable management to make a more reliable estimate of the size of Allowance for Uncollectible Accounts needed. This control relates to the completeness assertion.

A company policy states that annual vacations are mandatory for all employees. This policy is most important for employees who:

Auditing and the Public Accounting

Financial Statement Audits and

Professional Ethics

Auditors Legal Liability

Overview of the Audit Process

Audit Evidence, Audit Objectives,

Accepting the Engagement and

Materiality Decisions and Performing Analytical Procedures

Audit Risk, Including the Risk of Fraud

Understanding Internal Controls

Audit Procedures in Response to Assessed Risks: Tests of Controls

Audit Procedures in Response to Assessed Risks: Substantive Tests

Audit Sampling in Substantive Tests

Auditing the Expenditure Cycle

Auditing the Production and

Auditing the Investing and

Auditing Investments and

Completing the Audit and Postaudit

Attest and Assurance Services, and Related Reports

Internal, Operational, and

Filters