Question 1

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room? The cashier

Accepted Answer

A) prepares the daily deposit. 
B) makes the daily deposit at a local bank. 
C) records the receipts to the customer files. 
D) endorses the cheques with the company endorsement stamp. 
A) prepares the daily deposit. 
B) makes the daily deposit at a local bank. 
C) records the receipts to the customer files. 
D) endorses the cheques with the company endorsement stamp.

Question 2

The auditor would like to conduct dual purpose tests verifying that the programs performing the totaling and aging of accounts receivable are functioning correctly as well as quantifying any errors.Which of the following is a dual purpose test that the auditor could use?

Accepted Answer

A) use analytical review and compare amounts from current to prior 
B) inquire how the calculations are performed 
C) use test data and observe how the invoice(s)in the test are aged 
D) use generalized audit software to reperform the calculations 
A) use analytical review and compare amounts from current to prior 
B) inquire how the calculations are performed 
C) use test data and observe how the invoice(s)in the test are aged 
D) use generalized audit software to reperform the calculations

Question 3

There are three main types of revenue manipulations.Which of the following revenue manipulations affects the cutoff objective?

Accepted Answer

A) avoiding recording of returns and allowances for the year 
B) recording subsequent period sales as current period sales 
C) understatement of bad debts 
D) creation of fictitious sales that are misclassified as revenue 
A) avoiding recording of returns and allowances for the year 
B) recording subsequent period sales as current period sales 
C) understatement of bad debts 
D) creation of fictitious sales that are misclassified as revenue

Question 4

One of the reasons that the auditor considers the type of information system and its functions is to

Accepted Answer

A) assess whether hardware functioning affects applications. 
B) evaluate design effectiveness of internal controls. 
C) complete risk assessment by audit assertion for cycles. 
D) assess whether programmed controls can be relied upon. 
A) assess whether hardware functioning affects applications. 
B) evaluate design effectiveness of internal controls. 
C) complete risk assessment by audit assertion for cycles. 
D) assess whether programmed controls can be relied upon.

Question 5

Outline the audit procedures the auditor may consider performing to validate the rights and obligations assertion for accounts receivable.

Accepted Answer

The audit procedures the auditor may con

Question 6

What are the six classes of transactions in the revenue cycle and what entries relate to each class of transactions?

Accepted Answer

The six classes of transactions in the r

Question 7

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

Accepted Answer

A) no reply to a positive confirmation request is received. 
B) no reply to a negative confirmation request is received. 
C) collectability of the accounts receivable is in doubt. 
D) pledging of the accounts receivable is probable. 
A) no reply to a positive confirmation request is received. 
B) no reply to a negative confirmation request is received. 
C) collectability of the accounts receivable is in doubt. 
D) pledging of the accounts receivable is probable.

Question 8

What are the common indicators that the entity may be engaged in fraudulent financial reporting?

Accepted Answer

The common indicators that the entity ma

Question 9

To determine whether sales transactions have been recorded in the proper accounting period,the auditor performs cutoff tests.Which of the following best describes the overall approach used when performing cutoff tests?

Accepted Answer

A) Ascertain that management's letter of representation includes the statement that transactions have been accounted for in the proper accounting period. 
B) Analyze transactions occurring within a few days before and after year-end. 
C) Confirm year-end transactions with regular customers. 
D) Examine cash receipts in the subsequent period. 
A) Ascertain that management's letter of representation includes the statement that transactions have been accounted for in the proper accounting period. 
B) Analyze transactions occurring within a few days before and after year-end. 
C) Confirm year-end transactions with regular customers. 
D) Examine cash receipts in the subsequent period.

Question 10

You are the auditor of Foundry Inc. ,a company that manufactures chocolate bars and assorted candies.The description of the sales and collection cycle for Foundry is as follows.
Clients and Credit Limits
Foundry has 50 clients,as it mostly sells to grocery stores' central purchasing departments or distributors.For each customer,Foundry performs a credit check prior to setting the credit limit for the client.The credit limit is reviewed each year.In the past year,the credit limits were increased by 10%.This is due to the growth in Foundryès product lines and increased demand from customers.This also came at the same time the CEO of Foundry set the objective of growing the company's revenue by 25% over the next two years.Increasing the credit limit has helped Foundry move towards that objective.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is calculated by the controller by taking a percentage of the total sales for the month.The controller has been taking 3% of total sales.The estimate has not been revised in the current year,but it has always been sufficient to cover for any write-offs incurred.
Required:
For each of the two areas discussed above,identify the risk areas and the most likely misstatements for Foundry.

Accepted Answer

Clients and Credit Limits
-Risk is mitig

Question 11

Negative confirmations of accounts receivable are less effective than positive confirmations of accounts receivable because

Accepted Answer

A) a majority of recipients usually lack the willingness to respond objectively. 
B) some recipients may report incorrect balances that require extensive follow-up. 
C) the auditor cannot infer that all nonrespondents have verified their account information. 
D) negative confirmations do not produce evidential matter that is statistically quantifiable. 
A) a majority of recipients usually lack the willingness to respond objectively. 
B) some recipients may report incorrect balances that require extensive follow-up. 
C) the auditor cannot infer that all nonrespondents have verified their account information. 
D) negative confirmations do not produce evidential matter that is statistically quantifiable.

Question 12

The control objective associated with selecting a sample of recorded sales invoices from the sales journal and recalculating the cross totals of quantities and prices is

Accepted Answer

A) validity 
B) accuracy. 
C) completeness. 
D) ownership. 
A) validity 
B) accuracy. 
C) completeness. 
D) ownership.

Question 13

Which of the following controls pertains to audit trails in the batch processing of sales transactions?

Accepted Answer

A) groups of documents are totalled 
B) audit trail is available in electronic form 
C) the focus is on preventing incorrect transactions 
D) remittance advice information is matched to sales invoice numbers 
A) groups of documents are totalled 
B) audit trail is available in electronic form 
C) the focus is on preventing incorrect transactions 
D) remittance advice information is matched to sales invoice numbers

Question 14

The overall objective in the audit of the sales and collection cycle is to evaluate whether

Accepted Answer

A) the sales account and the accounts receivable account are free of errors. 
B) the sales account and the accounts receivable account are free of material errors. 
C) the sales account and the accounts receivable account are presented fairly in accordance with an applicable financial reporting framework. 
D) the account balances affected by the cycle are fairly presented in accordance with an applicable financial reporting framework. 
A) the sales account and the accounts receivable account are free of errors. 
B) the sales account and the accounts receivable account are free of material errors. 
C) the sales account and the accounts receivable account are presented fairly in accordance with an applicable financial reporting framework. 
D) the account balances affected by the cycle are fairly presented in accordance with an applicable financial reporting framework.

Question 15

The control objective associated with selecting a sample of cash receipts remittance lists or daily cash reports and tracing them through to the cash receipts journal is

Accepted Answer

A) validity. 
B) completeness. 
C) existence. 
D) ownership. 
A) validity. 
B) completeness. 
C) existence. 
D) ownership.

Question 16

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared.This test is performed to satisfy the audit objective of

Accepted Answer

A) accuracy. 
B) completeness. 
C) control. 
D) existence. 
A) accuracy. 
B) completeness. 
C) control. 
D) existence.

Question 17

Which of the following actions is more likely to be a result of error rather than fraud?

Accepted Answer

A) consignment sales are knowingly recorded as revenue 
B) orders are shipped to a customer with a bad credit rating 
C) fictitious revenue transactions are recorded and reported 
D) subsequent period revenue is deliberately recorded in the current period 
A) consignment sales are knowingly recorded as revenue 
B) orders are shipped to a customer with a bad credit rating 
C) fictitious revenue transactions are recorded and reported 
D) subsequent period revenue is deliberately recorded in the current period

Question 18

Discuss three examples of analytical procedures an auditor might perform while auditing the sales and collection cycle.Also discuss the potential misstatement(s)that may be revealed by each analytical procedure.
Note: students could also be asked to separately discuss ratios for planning and ratios as substantive tests.

Accepted Answer

Analytical procedures applicab

Question 19

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

Accepted Answer

For any positive confirmation not return

Question 20

Tracing a sample of recorded cash receipts to the customers' accounts in the accounts receivable subsidiary ledger is an audit procedure designed to satisfy the control objective of

Accepted Answer

A) completeness. 
B) accounting. 
C) validity. 
D) accuracy. 
A) completeness. 
B) accounting. 
C) validity. 
D) accuracy.

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room? The cashier

The auditor would like to conduct dual purpose tests verifying that the programs performing the totaling and aging of accounts receivable are functioning correctly as well as quantifying any errors.Which of the following is a dual purpose test that the auditor could use?

There are three main types of revenue manipulations.Which of the following revenue manipulations affects the cutoff objective?

One of the reasons that the auditor considers the type of information system and its functions is to

Outline the audit procedures the auditor may consider performing to validate the rights and obligations assertion for accounts receivable.

What are the six classes of transactions in the revenue cycle and what entries relate to each class of transactions?

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

What are the common indicators that the entity may be engaged in fraudulent financial reporting?

To determine whether sales transactions have been recorded in the proper accounting period,the auditor performs cutoff tests.Which of the following best describes the overall approach used when performing cutoff tests?

Negative confirmations of accounts receivable are less effective than positive confirmations of accounts receivable because

The control objective associated with selecting a sample of recorded sales invoices from the sales journal and recalculating the cross totals of quantities and prices is

Which of the following controls pertains to audit trails in the batch processing of sales transactions?

The overall objective in the audit of the sales and collection cycle is to evaluate whether

The control objective associated with selecting a sample of cash receipts remittance lists or daily cash reports and tracing them through to the cash receipts journal is

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared.This test is performed to satisfy the audit objective of

Which of the following actions is more likely to be a result of error rather than fraud?

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

Tracing a sample of recorded cash receipts to the customers' accounts in the accounts receivable subsidiary ledger is an audit procedure designed to satisfy the control objective of

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

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room? The cashier

The auditor would like to conduct dual purpose tests verifying that the programs performing the totaling and aging of accounts receivable are functioning correctly as well as quantifying any errors.Which of the following is a dual purpose test that the auditor could use?

There are three main types of revenue manipulations.Which of the following revenue manipulations affects the cutoff objective?

One of the reasons that the auditor considers the type of information system and its functions is to

Outline the audit procedures the auditor may consider performing to validate the rights and obligations assertion for accounts receivable.

What are the six classes of transactions in the revenue cycle and what entries relate to each class of transactions?

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when

What are the common indicators that the entity may be engaged in fraudulent financial reporting?

To determine whether sales transactions have been recorded in the proper accounting period,the auditor performs cutoff tests.Which of the following best describes the overall approach used when performing cutoff tests?

Negative confirmations of accounts receivable are less effective than positive confirmations of accounts receivable because

The control objective associated with selecting a sample of recorded sales invoices from the sales journal and recalculating the cross totals of quantities and prices is

Which of the following controls pertains to audit trails in the batch processing of sales transactions?

The overall objective in the audit of the sales and collection cycle is to evaluate whether

The control objective associated with selecting a sample of cash receipts remittance lists or daily cash reports and tracing them through to the cash receipts journal is

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared.This test is performed to satisfy the audit objective of

Which of the following actions is more likely to be a result of error rather than fraud?

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

Tracing a sample of recorded cash receipts to the customers' accounts in the accounts receivable subsidiary ledger is an audit procedure designed to satisfy the control objective of

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