Question 1

Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

Accepted Answer

A) True 
 B)False

Question 2

It is beneficial in the testing of notes receivable to confirm not only the balance of the notes, but also their terms.

Accepted Answer

A) True 
 B)False

Question 3

Accounts receivable risks.
In the financial statements, there are many risks associated with an audit that must be considered. Identify and discuss five separate risks that may exist related to accounts receivable.

Accepted Answer

Potential risks associated with accounts

Question 4

The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction and collecting the receivable.

Accepted Answer

A) True 
 B)False

Question 5

Valid evidence obtained in an audit for testing the cutoff of gross sales includes receiving reports for returned merchandise.

Accepted Answer

A) True 
 B)False

Question 6

The internal audit department at Monument Company receives electronic exceptions reports for all sales transactions entered over $10,000 in total. This process is performed for which purpose?

Accepted Answer

A)  Drafting financial statements. 
B)  Monitoring revenue transactions. 
C)  Providing management reports to the controller. 
D)  Providing suggestions for operational improvement. 
A)  Drafting financial statements. 
B)  Monitoring revenue transactions. 
C)  Providing management reports to the controller. 
D)  Providing suggestions for operational improvement.

Question 7

According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations?

Accepted Answer

A)  On every audit engagement. 
B)  If the client agrees in writing to the procedure. 
C)  If the balance is material. 
D)  If environmental risk is low. 
A)  On every audit engagement. 
B)  If the client agrees in writing to the procedure. 
C)  If the balance is material. 
D)  If environmental risk is low.

Question 8

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?

Accepted Answer

A)  Confirmations are selected based upon zip codes. 
B)  A P.O. Box is more reliable than a street address. 
C)  Confirmations should be sent only to business addresses and not residential. 
D)  The address may be routed to the client for retrieval and fraudulent signing. 
A)  Confirmations are selected based upon zip codes. 
B)  A P.O. Box is more reliable than a street address. 
C)  Confirmations should be sent only to business addresses and not residential. 
D)  The address may be routed to the client for retrieval and fraudulent signing.

Question 9

The auditor will come up with an independent estimation of the allowance for doubtful accounts based on a thorough understanding of the client and the client's business that is compared to the recorded allowance.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following procedures would be considered improper by the auditor in the process of confirming receivables?

Accepted Answer

A)  The auditor allows the client's staff to prepare the confirmation letters after the auditor has chosen the items to be confirmed. 
B)  The auditor allows the client to sign the confirmations after they are prepared. 
C)  The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters. 
D)  The auditor asks the addressee to return the confirmation to the audit firm's office. 
A)  The auditor allows the client's staff to prepare the confirmation letters after the auditor has chosen the items to be confirmed. 
B)  The auditor allows the client to sign the confirmations after they are prepared. 
C)  The auditor allows the client's staff to mail the confirmation letters after he or she has proofed the typing of the letters. 
D)  The auditor asks the addressee to return the confirmation to the audit firm's office.

Question 11

The auditor's determination that day's sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.

Accepted Answer

A) True 
 B)False

Question 12

Confirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been sold to the bank on a recourse basis.

Accepted Answer

A) True 
 B)False

Question 13

A tendency for fraud may exist when the granting of stock options is dependent on reaching an earnings goal.

Accepted Answer

A) True 
 B)False

Question 14

Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. and decide to confirm a sample of accounts receivable. This test is performed by Homer and Moe primarily to substantiate which of the following assertions?

Accepted Answer

A)  Existence of related party transactions. 
B)  Existence of accounts receivable. 
C)  Obligation of debt. 
D)  Cutoff of the allowance for bad debt. 
A)  Existence of related party transactions. 
B)  Existence of accounts receivable. 
C)  Obligation of debt. 
D)  Cutoff of the allowance for bad debt.

Question 15

The primary difference between positive and negative confirmations used in the audit of accounts receivable is which of the following?

Accepted Answer

A)  The mode of response. 
B)  The amount of information included. 
C)  The control of the confirmation process by the auditor. 
D)  The method in which accounts are selected for confirmation. 
A)  The mode of response. 
B)  The amount of information included. 
C)  The control of the confirmation process by the auditor. 
D)  The method in which accounts are selected for confirmation.

Question 16

The use of audit software makes the audit of the revenue cycle more effective, but not more efficient.

Accepted Answer

A) True 
 B)False

Question 17

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?

Accepted Answer

A)  To determine revenue recognition policies. 
B)  To ensure customer satisfaction. 
C)  To prevent lapping by the accounts receivable department. 
D)  To ensure the realization of receivables. 
A)  To determine revenue recognition policies. 
B)  To ensure customer satisfaction. 
C)  To prevent lapping by the accounts receivable department. 
D)  To ensure the realization of receivables.

Question 18

Edge and Gregg, LLP would most likely discover a client's first-time use of channel stuffing through the use of trend analysis.

Accepted Answer

A) True 
 B)False

Question 19

Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

Accepted Answer

A) True 
 B)False

Question 20

The shipping department confirms the shipment of goods by completing the packing slip and returning it to the purchasing department.

Accepted Answer

A) True 
 B)False

Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

It is beneficial in the testing of notes receivable to confirm not only the balance of the notes, but also their terms.

Accounts receivable risks. In the financial statements, there are many risks associated with an audit that must be considered. Identify and discuss five separate risks that may exist related to accounts receivable.

The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction and collecting the receivable.

Valid evidence obtained in an audit for testing the cutoff of gross sales includes receiving reports for returned merchandise.

The internal audit department at Monument Company receives electronic exceptions reports for all sales transactions entered over $10,000 in total. This process is performed for which purpose?

According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations?

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?

The auditor will come up with an independent estimation of the allowance for doubtful accounts based on a thorough understanding of the client and the client's business that is compared to the recorded allowance.

Which one of the following procedures would be considered improper by the auditor in the process of confirming receivables?

The auditor's determination that day's sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.

Confirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been sold to the bank on a recourse basis.

A tendency for fraud may exist when the granting of stock options is dependent on reaching an earnings goal.

Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. and decide to confirm a sample of accounts receivable. This test is performed by Homer and Moe primarily to substantiate which of the following assertions?

The primary difference between positive and negative confirmations used in the audit of accounts receivable is which of the following?

The use of audit software makes the audit of the revenue cycle more effective, but not more efficient.

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?

Edge and Gregg, LLP would most likely discover a client's first-time use of channel stuffing through the use of trend analysis.

Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

The shipping department confirms the shipment of goods by completing the packing slip and returning it to the purchasing department.

Auditing: Integral to the Economy

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters

Exam 9: Auditing the Revenue Cycle

Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

It is beneficial in the testing of notes receivable to confirm not only the balance of the notes, but also their terms.

Accounts receivable risks. In the financial statements, there are many risks associated with an audit that must be considered. Identify and discuss five separate risks that may exist related to accounts receivable.

The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction and collecting the receivable.

Valid evidence obtained in an audit for testing the cutoff of gross sales includes receiving reports for returned merchandise.

The internal audit department at Monument Company receives electronic exceptions reports for all sales transactions entered over $10,000 in total. This process is performed for which purpose?

According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations?

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?

The auditor will come up with an independent estimation of the allowance for doubtful accounts based on a thorough understanding of the client and the client's business that is compared to the recorded allowance.

Which one of the following procedures would be considered improper by the auditor in the process of confirming receivables?

The auditor's determination that day's sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.

Confirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been sold to the bank on a recourse basis.

A tendency for fraud may exist when the granting of stock options is dependent on reaching an earnings goal.

Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. and decide to confirm a sample of accounts receivable. This test is performed by Homer and Moe primarily to substantiate which of the following assertions?

The primary difference between positive and negative confirmations used in the audit of accounts receivable is which of the following?

The use of audit software makes the audit of the revenue cycle more effective, but not more efficient.

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?

Edge and Gregg, LLP would most likely discover a client's first-time use of channel stuffing through the use of trend analysis.

Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

The shipping department confirms the shipment of goods by completing the packing slip and returning it to the purchasing department.

Auditing: Integral to the Economy

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditors

Professional Liability, Auditor Judgment Frameworks, and Professional Responsibilities

Professional Auditing Standards and the Audit Opinion Formulation Process

A Framework for Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Debt Obligations and Stockholders Equity Transactions

Activities Required in Completing a Quality Audit

Audit Reports on Financial Statements

Advanced Topics Concerning Complex Auditing Judgments

Other Services Provided by Audit Firms

Filters