Question 1

Management has been found involved in many fraudulent schemes; a common one is "channel stuffing." What does "channel stuffing" involve?

Accepted Answer

A)  Overly complex transactions. 
B)  Growth through stock acquisitions. 
C)  Shipment of goods not ordered. 
D)  Management compensation schemes. 
A)  Overly complex transactions. 
B)  Growth through stock acquisitions. 
C)  Shipment of goods not ordered. 
D)  Management compensation schemes.

Question 2

Alternative procedures to the confirmation of receivables include review of subsequent collections and examination of supporting evidence.

Accepted Answer

A) True 
 B)False

Question 3

Substantive procedures for sales and receivables assertions.
The auditor for Knowles, Inc. is attempting to determine whether the recorded sales and accounts receivable are supported by valid transactions. Identify the assertions being tested and develop the substantive procedures to be used to satisfy the auditor's objectives.

Accepted Answer

The auditor is testing the existence and

Question 4

Formal procedures for approving acceptance of returns that are beyond the warranty period are an appropriate control procedure for identifying and recording returned goods.

Accepted Answer

A) True 
 B)False

Question 5

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following?

Accepted Answer

A)  Substantiate cutoff and the occurrence of net sales transactions. 
B)  Test the sufficiency of cash balances to cover refunds. 
C)  Monitor customer satisfaction for disclosure. 
D)  Assess the nature of procedures that will be performed for the next period's audit. 
A)  Substantiate cutoff and the occurrence of net sales transactions. 
B)  Test the sufficiency of cash balances to cover refunds. 
C)  Monitor customer satisfaction for disclosure. 
D)  Assess the nature of procedures that will be performed for the next period's audit.

Question 6

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Accepted Answer

A)  Physical observation of customer facilities. 
B)  Review of subsequent collections. 
C)  Analysis of the aged trial balance. 
D)  A confirmation to the client management for customer accounts. 
A)  Physical observation of customer facilities. 
B)  Review of subsequent collections. 
C)  Analysis of the aged trial balance. 
D)  A confirmation to the client management for customer accounts.

Question 7

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately?

Accepted Answer

A)  Sales are recorded at the invoice price expected to be collected from customers. 
B)  Sales orders have sequential numbering. 
C)  Recorded sales transactions are evidenced by valid invoices and shipping documents. 
D)  Credits to customer accounts are classified as liabilities. 
A)  Sales are recorded at the invoice price expected to be collected from customers. 
B)  Sales orders have sequential numbering. 
C)  Recorded sales transactions are evidenced by valid invoices and shipping documents. 
D)  Credits to customer accounts are classified as liabilities.

Question 8

The major risk associated with receivables is related to which of the following?

Accepted Answer

A)  They may be sold to a bank with recourse. 
B)  They may be recorded as long-term when in fact they will be realized in the current period. 
C)  They will not be realized for the entire amount due. 
D)  They are pledged as collateral as disclosed in the footnotes to financial statements. 
A)  They may be sold to a bank with recourse. 
B)  They may be recorded as long-term when in fact they will be realized in the current period. 
C)  They will not be realized for the entire amount due. 
D)  They are pledged as collateral as disclosed in the footnotes to financial statements.

Question 9

The aged accounts receivable report is utilized by the auditor to accomplish which of the following?

Accepted Answer

A)  Encourage the client to collect on receivables that are long past due. 
B)  Select the type of confirmations that will be sent to banks. 
C)  Assess the adequacy of the allowance for doubtful accounts. 
D)  Identify debits in the receivables balance that should be reclassified to payables. 
A)  Encourage the client to collect on receivables that are long past due. 
B)  Select the type of confirmations that will be sent to banks. 
C)  Assess the adequacy of the allowance for doubtful accounts. 
D)  Identify debits in the receivables balance that should be reclassified to payables.

Question 10

Which of the following is not a form of ratio analysis?

Accepted Answer

A)  Turnover of receivables. 
B)  Monthly sales analysis compared with past years. 
C)  Gross margin analysis. 
D)  Sales in last month to total sales. 
A)  Turnover of receivables. 
B)  Monthly sales analysis compared with past years. 
C)  Gross margin analysis. 
D)  Sales in last month to total sales.

Question 11

A cross-sectional analysis of revenue recorded across multiple sales location is a form of what type of testing?

Accepted Answer

A)  Trend analysis 
B)  Common size analysis 
C)  Ratio analysis 
D)  Regression analysis 
A)  Trend analysis 
B)  Common size analysis 
C)  Ratio analysis 
D)  Regression analysis

Question 12

The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

Accepted Answer

A) True 
 B)False

Question 13

In an audit of financial statements, the risk of the high rate of return of products sold includes relates to which of the following?

Accepted Answer

A)  Sales that are recorded improperly. 
B)  An estimate of accrued returns that reduces net income. 
C)  A reduction of net sales for an increase to the sales returns and allowance account. 
D)  Consignment goods that are returned and forwarded to third parties. 
A)  Sales that are recorded improperly. 
B)  An estimate of accrued returns that reduces net income. 
C)  A reduction of net sales for an increase to the sales returns and allowance account. 
D)  Consignment goods that are returned and forwarded to third parties.

Question 14

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations?

Accepted Answer

A)  Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors. 
B)  Gross margin is equivalent in the current period to previous periods and is below that of the industry. 
C)  Sales are higher in the month preceding each quarter end. 
D)  The sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction. 
A)  Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors. 
B)  Gross margin is equivalent in the current period to previous periods and is below that of the industry. 
C)  Sales are higher in the month preceding each quarter end. 
D)  The sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.

Question 15

The risk of material misstatement due to fraud relating to revenue recognition should be

Accepted Answer

A)  approached in a manner that is identical to control risk assessment. 
B)  given lower priority to the risk of embezzlement. 
C)  ordinarily presumed by the auditor. 
D)  assumed to have been considered by the FASB. 
A)  approached in a manner that is identical to control risk assessment. 
B)  given lower priority to the risk of embezzlement. 
C)  ordinarily presumed by the auditor. 
D)  assumed to have been considered by the FASB.

Question 16

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

Accepted Answer

A)  The cash is realized on the sale of the product. 
B)  A price is discussed based upon the customer's resale of the product. 
C)  The customer is given the option to return the product at any time. 
D)  The product is adequately delivered to the customer. 
A)  The cash is realized on the sale of the product. 
B)  A price is discussed based upon the customer's resale of the product. 
C)  The customer is given the option to return the product at any time. 
D)  The product is adequately delivered to the customer.

Question 17

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

Accepted Answer

A)  To provide the customer a copy of the transaction. 
B)  To provide evidence of authorization and recording. 
C)  To offer credit to customers. 
D)  To generate back orders. 
A)  To provide the customer a copy of the transaction. 
B)  To provide evidence of authorization and recording. 
C)  To offer credit to customers. 
D)  To generate back orders.

Question 18

A timing difference type of exception in the confirmation process may include a misunderstanding by the reader as to the date being confirmed.

Accepted Answer

A) True 
 B)False

Question 19

A method of testing for the completeness of sales is to test the sequence of sales invoices used during the period under audit.

Accepted Answer

A) True 
 B)False

Question 20

Material debit balances in accounts payable for amounts due from vendors should be reclassified as accounts receivable.

Accepted Answer

A) True 
 B)False

Management has been found involved in many fraudulent schemes; a common one is "channel stuffing." What does "channel stuffing" involve?

Alternative procedures to the confirmation of receivables include review of subsequent collections and examination of supporting evidence.

Formal procedures for approving acceptance of returns that are beyond the warranty period are an appropriate control procedure for identifying and recording returned goods.

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following?

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately?

The major risk associated with receivables is related to which of the following?

The aged accounts receivable report is utilized by the auditor to accomplish which of the following?

Which of the following is not a form of ratio analysis?

A cross-sectional analysis of revenue recorded across multiple sales location is a form of what type of testing?

The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

In an audit of financial statements, the risk of the high rate of return of products sold includes relates to which of the following?

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations?

The risk of material misstatement due to fraud relating to revenue recognition should be

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

A timing difference type of exception in the confirmation process may include a misunderstanding by the reader as to the date being confirmed.

A method of testing for the completeness of sales is to test the sequence of sales invoices used during the period under audit.

Material debit balances in accounts payable for amounts due from vendors should be reclassified as accounts receivable.

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

Management has been found involved in many fraudulent schemes; a common one is "channel stuffing." What does "channel stuffing" involve?

Alternative procedures to the confirmation of receivables include review of subsequent collections and examination of supporting evidence.

Formal procedures for approving acceptance of returns that are beyond the warranty period are an appropriate control procedure for identifying and recording returned goods.

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following?

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately?

The major risk associated with receivables is related to which of the following?

The aged accounts receivable report is utilized by the auditor to accomplish which of the following?

Which of the following is not a form of ratio analysis?

A cross-sectional analysis of revenue recorded across multiple sales location is a form of what type of testing?

The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

In an audit of financial statements, the risk of the high rate of return of products sold includes relates to which of the following?

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations?

The risk of material misstatement due to fraud relating to revenue recognition should be

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

A timing difference type of exception in the confirmation process may include a misunderstanding by the reader as to the date being confirmed.

A method of testing for the completeness of sales is to test the sequence of sales invoices used during the period under audit.

Material debit balances in accounts payable for amounts due from vendors should be reclassified as accounts receivable.

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