Question 1

Confirmation of individual accounts receivable balances directly with debtors will,of itself,normally provide evidence concerning the

Accepted Answer

A) collectability of the balances confirmed. 
B) ownership of the balances confirmed. 
C) existence of the balances confirmed. 
D) internal control over balances confirmed. 
A) collectability of the balances confirmed. 
B) ownership of the balances confirmed. 
C) existence of the balances confirmed. 
D) internal control over balances confirmed. C

Question 2

Typical source documents involved in the revenue and collection cycle would be

Accepted Answer

A) cash disbursements. 
B) vendor invoices. 
C) shipping documents. 
D) customer invoices. 
A) cash disbursements. 
B) vendor invoices. 
C) shipping documents. 
D) customer invoices. C

Question 3

A)An auditor is concerned that accounts receivable may be understated due to sales to customers that have been omitted from the sales journal and from the accounts receivable master file.Describe the procedure(s)the auditor should perform in these circumstances.B)Describe how the auditor tests the classification objective for accounts receivable.

Accepted Answer

A)The understatement of sales and accounts receivable is best uncovered by substantive tests of transactions for shipments made but not recorded by tracing from a sample of shipping documents (bills of lading)to the sales journal to verify that each shipment has been recorded.
B)The classification objective is tested by reviewing the aged trial balance for material amounts receivable from affiliates,officers,directors,or other related parties.If notes receivable or accounts that should not be classified as a current asset are included with the regular accounts,these should also be segregated.Finally,if credit balances in accounts receivable are significant,it is appropriate to reclassify them as accounts payable.

Question 4

The document that is used to prepare and reconcile the deposit of cash and improve control over the custody of assets (cash)is the

Accepted Answer

A) sales invoice. 
B) credit memo. 
C) remittance advice. 
D) cash receipts journal. 
A) sales invoice. 
B) credit memo. 
C) remittance advice. 
D) cash receipts journal.

Question 5

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the accounts receivables'

Accepted Answer

A) valuation. 
B) classification. 
C) existence. 
D) completeness. 
A) valuation. 
B) classification. 
C) existence. 
D) completeness.

Question 6

Which of the following control weaknesses could result in problems with collectability of accounts receivable?

Accepted Answer

A) Unauthorized individuals can establish or change credit limits. 
B) Matching shipping documents to sales records is done weekly. 
C) When there is one error in a batch of transactions,the whole batch is rejected. 
D) Cash receipts are matched to the customer accounts rather than against specific invoices. 
A) Unauthorized individuals can establish or change credit limits. 
B) Matching shipping documents to sales records is done weekly. 
C) When there is one error in a batch of transactions,the whole batch is rejected. 
D) Cash receipts are matched to the customer accounts rather than against specific invoices.

Question 7

Outline the audit procedures the auditor may consider performing to validate the presentation and disclosure assertion for revenue and accounts receivables.

Accepted Answer

The audit procedures the auditor may con

Question 8

A)Describe the four business functions that result in sales transactions in a typical sales and collection cycle,and state the key documents and records involved in each function.B)State the five classes of transactions that comprise the sales and collection cycle.C)The sales and collections cycle is comprised of nine business functions.The first four functions result in sales transactions.Discuss the remaining four business functions that occur after sales transactions,and identify the key documents and records involved in each of the five functions.

Accepted Answer

A)The four business functions that resul

Question 9

In the planning phase,Denis conducted an analytical procedure to compare the allowance for doubtful accounts balance to the accounts receivable balance.In the prior years,the allowance for the doubtful accounts/accounts receivable ratio was between 2.5% to 3.5%.This year,the number is 1.25%.What should Denis do?

Accepted Answer

A) Change the assessed inherent risk 
B) Conduct additional testing to justify the lower bad debt. 
C) Advise management that they should increase the allowance for doubtful accounts provision. 
D) Document this difference and continue with audit work to see if this is pervasive bias of management. 
A) Change the assessed inherent risk 
B) Conduct additional testing to justify the lower bad debt. 
C) Advise management that they should increase the allowance for doubtful accounts provision. 
D) Document this difference and continue with audit work to see if this is pervasive bias of management.

Question 10

Glee Inc.is a manufacturer of musical instruments and its year end is September 30.Copa Loca,a local music school,purchased some instruments from Glee but was not satisfied with the quality and returned the goods to Glee during the last week of September.Being very busy with year end,Glee received the goods from Copa Loca on September 30 but only processed the returned merchandised and issued a credit note in October.This represents a

Accepted Answer

A) cutoff (allocation)misstatement. 
B) understandability misstatement. 
C) significant misstatement. 
D) classification misstatement. 
A) cutoff (allocation)misstatement. 
B) understandability misstatement. 
C) significant misstatement. 
D) classification misstatement.

Question 11

It is common to test sales for proper classification as part of testing for

Accepted Answer

A) cutoff. 
B) accuracy. 
C) valuation. 
D) completeness. 
A) cutoff. 
B) accuracy. 
C) valuation. 
D) completeness.

Question 12

A positive confirmation is more reliable evidence than a negative confirmation because

Accepted Answer

A) the auditor has a document that can be used in court. 
B) follow-up procedures can be performed if a response is not received from the debtor. 
C) the debtor's lack of response indicates agreement with the stated balance. 
D) fewer confirmations can be sent out. 
A) the auditor has a document that can be used in court. 
B) follow-up procedures can be performed if a response is not received from the debtor. 
C) the debtor's lack of response indicates agreement with the stated balance. 
D) fewer confirmations can be sent out.

Question 13

The auditor obtains corroborating audit evidence for accounts receivable by using positive or negative confirmation requests.Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

Accepted Answer

A) A substantial number of accounts are in dispute. 
B) Internal control over accounts receivable is ineffective. 
C) Client records include a large number of relatively small balances. 
D) The auditor believes that recipients of the requests are unlikely to give them consideration. 
A) A substantial number of accounts are in dispute. 
B) Internal control over accounts receivable is ineffective. 
C) Client records include a large number of relatively small balances. 
D) The auditor believes that recipients of the requests are unlikely to give them consideration.

Question 14

The two primary classes of transactions in the sales and collection cycle are

Accepted Answer

A) sales and sales returns. 
B) sales and sales discounts. 
C) sales and accounts receivable. 
D) sales and cash receipts. 
A) sales and sales returns. 
B) sales and sales discounts. 
C) sales and accounts receivable. 
D) sales and cash receipts.

Question 15

A risk of material misstatement in accounts receivable associated with the rights and obligations balance-related audit objective is that "consignment goods are recorded as revenue,overstating both revenue and accounts receivable." Which of the following tests of detail of balances would respond to this risk?

Accepted Answer

A) Include confirmation of terms of sale with accounts receivable confirmations. 
B) Check cash received after the year end and trace to accounts receivable master file. 
C) Read the notes to the financial statements and compare to audited financial information. 
D) Compare accounts receivable balances by customer last year end to this year. 
A) Include confirmation of terms of sale with accounts receivable confirmations. 
B) Check cash received after the year end and trace to accounts receivable master file. 
C) Read the notes to the financial statements and compare to audited financial information. 
D) Compare accounts receivable balances by customer last year end to this year.

Question 16

The defalcation process that postpones entries for the collection of accounts receivable to conceal an existing cash shortage is referred to as

Accepted Answer

A) kiting. 
B) lapping. 
C) computer fraud. 
D) financial statement fraud. 
A) kiting. 
B) lapping. 
C) computer fraud. 
D) financial statement fraud.

Question 17

A document that is used to describe and authorize additions,changes,or deletion of sales prices or customer data is called a(n)

Accepted Answer

A) uncollectible account authorization form. 
B) journal entry authorization form. 
C) master file change form. 
D) transaction file change form. 
A) uncollectible account authorization form. 
B) journal entry authorization form. 
C) master file change form. 
D) transaction file change form.

Question 18

Which of the following key controls helps ensure that sales transactions are classified to the correct account?

Accepted Answer

A) Computer checks for gaps in shipping document numbers. 
B) Invoices are prepared using prices and terms from the customer master file. 
C) Management reviews sales reports regularly for reasonableness. 
D) Posting is done automatically to the sales account based on periodic totals. 
A) Computer checks for gaps in shipping document numbers. 
B) Invoices are prepared using prices and terms from the customer master file. 
C) Management reviews sales reports regularly for reasonableness. 
D) Posting is done automatically to the sales account based on periodic totals.

Question 19

Most companies recognize sales when

Accepted Answer

A) a customer order is received. 
B) the merchandise is shipped. 
C) the merchandise is received by the customer. 
D) cash is received on account. 
A) a customer order is received. 
B) the merchandise is shipped. 
C) the merchandise is received by the customer. 
D) cash is received on account.

Question 20

Your audit client has many different types of accounts receivable: Canadian,American,and other international accounts;and short- and long-term accounts.There are also some sales on consignment.The company has used forward exchange contracts to reduce its exposure due to foreign exchange fluctuations.How will this affect the audit engagement?

Accepted Answer

A) control risk will increase 
B) inherent risks of error will decrease 
C) risk of material misstatement increases 
D) audit risk will be increased 
A) control risk will increase 
B) inherent risks of error will decrease 
C) risk of material misstatement increases 
D) audit risk will be increased

Confirmation of individual accounts receivable balances directly with debtors will,of itself,normally provide evidence concerning the

Typical source documents involved in the revenue and collection cycle would be

The document that is used to prepare and reconcile the deposit of cash and improve control over the custody of assets (cash)is the

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the accounts receivables'

Which of the following control weaknesses could result in problems with collectability of accounts receivable?

Outline the audit procedures the auditor may consider performing to validate the presentation and disclosure assertion for revenue and accounts receivables.

It is common to test sales for proper classification as part of testing for

A positive confirmation is more reliable evidence than a negative confirmation because

The auditor obtains corroborating audit evidence for accounts receivable by using positive or negative confirmation requests.Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

The two primary classes of transactions in the sales and collection cycle are

The defalcation process that postpones entries for the collection of accounts receivable to conceal an existing cash shortage is referred to as

A document that is used to describe and authorize additions,changes,or deletion of sales prices or customer data is called a(n)

Which of the following key controls helps ensure that sales transactions are classified to the correct account?

Most companies recognize sales when

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 12: Audit of the Revenue Cycle

Confirmation of individual accounts receivable balances directly with debtors will,of itself,normally provide evidence concerning the

Typical source documents involved in the revenue and collection cycle would be

The document that is used to prepare and reconcile the deposit of cash and improve control over the custody of assets (cash)is the

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the accounts receivables'

Which of the following control weaknesses could result in problems with collectability of accounts receivable?

Outline the audit procedures the auditor may consider performing to validate the presentation and disclosure assertion for revenue and accounts receivables.

It is common to test sales for proper classification as part of testing for

A positive confirmation is more reliable evidence than a negative confirmation because

The auditor obtains corroborating audit evidence for accounts receivable by using positive or negative confirmation requests.Under which of the following circumstances might the negative form of the accounts receivable confirmation be useful?

The two primary classes of transactions in the sales and collection cycle are

The defalcation process that postpones entries for the collection of accounts receivable to conceal an existing cash shortage is referred to as

A document that is used to describe and authorize additions,changes,or deletion of sales prices or customer data is called a(n)

Which of the following key controls helps ensure that sales transactions are classified to the correct account?

Most companies recognize sales when

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters