Question 1

Poor controls over credit limit approval or in changing the credit limit in the master file may result in

Accepted Answer

A)  confused and frustrated customers. 
B)  incomplete sales records. 
C)  financial statement errors for sales and AR accounts. 
D)  excessive bad debts and uncollectible account receivables. 
A)  confused and frustrated customers. 
B)  incomplete sales records. 
C)  financial statement errors for sales and AR accounts. 
D)  excessive bad debts and uncollectible account receivables.

Question 2

To test for recorded sales for which there were no actual shipments, the auditor traces from the

Accepted Answer

A)  bill of lading to the sales journal. 
B)  sales journal to the shipping documents. 
C)  sales journal to the accounts receivable subsidiary ledger. 
D)  bill of lading to the supporting customer order and sales order. 
A)  bill of lading to the sales journal. 
B)  sales journal to the shipping documents. 
C)  sales journal to the accounts receivable subsidiary ledger. 
D)  bill of lading to the supporting customer order and sales order.

Question 3

Audit risk is assessed for

Accepted Answer

A)  the financial statements as a whole and is not usually allocated to various accounts or objectives. 
B)  the financial statements as a whole and then allocated to various accounts. 
C)  various accounts but not for the financial statements as a whole. 
D)  various accounts and objectives, and the sum is then assigned to the financial statements as a whole. 
A)  the financial statements as a whole and is not usually allocated to various accounts or objectives. 
B)  the financial statements as a whole and then allocated to various accounts. 
C)  various accounts but not for the financial statements as a whole. 
D)  various accounts and objectives, and the sum is then assigned to the financial statements as a whole.

Question 4

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 5

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 6

After the items for confirmation have been selected, the auditor must maintain control of the confirmations until

Accepted Answer

A)  the names are provided to the client's personnel to type the envelopes. 
B)  the sealed envelopes are provided to the client's personnel to be mailed. 
C)  the responses are received by the client with the return mail. 
D)  they are returned by the debtor to the auditor. 
A)  the names are provided to the client's personnel to type the envelopes. 
B)  the sealed envelopes are provided to the client's personnel to be mailed. 
C)  the responses are received by the client with the return mail. 
D)  they are returned by the debtor to the auditor.

Question 7

At every audit engagement the auditor is required to consider that there could be significant risks of misstatement for revenue recognition. At ABC Ltd., the auditor has concluded that, yes, there are material risks of misstatement associated with revenue recognition. How does this affect the extent of testing for accounts receivable?

Accepted Answer

A)  Audit risk will be increased. 
B)  Inherent risks will be decreased. 
C)  Decreased control testing is required. 
D)  Increased substantive testing is required. 
A)  Audit risk will be increased. 
B)  Inherent risks will be decreased. 
C)  Decreased control testing is required. 
D)  Increased substantive testing is required.

Question 8

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 9

Outline the key areas that the auditor would review as part of general controls.

Accepted Answer

The key areas that the auditor would rev

Question 10

Which of the following audit procedures is a dual-purpose test?

Accepted Answer

A)  Conduct analytical review to determine the reasonableness of the bad debt allowance. 
B)  Examine credit limit changes for authorization. 
C)  Calculate the accuracy of the accounts receivable aging. 
D)  Observe error message when incorrect customer number is entered. 
A)  Conduct analytical review to determine the reasonableness of the bad debt allowance. 
B)  Examine credit limit changes for authorization. 
C)  Calculate the accuracy of the accounts receivable aging. 
D)  Observe error message when incorrect customer number is entered.

Question 11

When the client's internal control structure is adequate, the cutoff can usually be verified by

Accepted Answer

A)  the client's representation letter. 
B)  inquiries of the controller. 
C)  obtaining the last shipping document number of the year and comparing it with current and subsequent period recorded sales. 
D)  confirmation of the receivable for the last recorded sale. 
A)  the client's representation letter. 
B)  inquiries of the controller. 
C)  obtaining the last shipping document number of the year and comparing it with current and subsequent period recorded sales. 
D)  confirmation of the receivable for the last recorded sale.

Question 12

What is the primary focus with respect to error detection and correction for the online processing of sales transactions?

Accepted Answer

A)  reject groups of transactions when one transaction is in error 
B)  trace daily sales totals from the journals to the general ledger 
C)  account for numeric sequencing of input documents 
D)  prevent the entering of incorrect transactions using data entry edits 
A)  reject groups of transactions when one transaction is in error 
B)  trace daily sales totals from the journals to the general ledger 
C)  account for numeric sequencing of input documents 
D)  prevent the entering of incorrect transactions using data entry edits

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

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 15

Which of the following documents and records is used to record the packages, weights, and sizes shipped using an external trucking company?

Accepted Answer

A)  remittance advice 
B)  shipping advice containing shipment tracking number 
C)  returns receiving report 
D)  bill of lading 
A)  remittance advice 
B)  shipping advice containing shipment tracking number 
C)  returns receiving report 
D)  bill of lading

Question 16

If the internal controls for recording sales returns and allowances are evaluated as ineffective,

Accepted Answer

A)  a larger sample is needed to verify cutoff. 
B)  sampling is not appropriate. 
C)  all sales returns must be traced to supporting documentation. 
D)  all sales returns must be confirmed with the customer. 
A)  a larger sample is needed to verify cutoff. 
B)  sampling is not appropriate. 
C)  all sales returns must be traced to supporting documentation. 
D)  all sales returns must be confirmed with the customer.

Question 17

You are conducting an audit and have obtained the following figures with respect to sales and accounts receivable:
 $$\begin{array} { l r r r } 
& \mathbf { 2 0 1 5 } & \mathbf { 2 0 1 4 } \
\text { Accounts receivable } &\$ \mathbf { 3 } 343000 & \$ 2694000 \
\text { Allowance for doubtful accounts } & 212150 & 207660 \
\text { Sales } & 25640000 & 24630000
\end{array}$$ 
Required: 
A) What are the audit implications of these figures?
B) Identify key audit steps that you would perform for any of the above accounts.

Accepted Answer

A)Accounts receivable has increased subs

Question 18

The most reliable evidence from confirmations is obtained when they are sent

Accepted Answer

A)  several months before the year-end, so the auditor will have adequate time to perform alternate procedures if they are required. 
B)  at various times throughout the year to different sections of the sample, so that the entire sample is representative of account balances scattered throughout the year. 
C)  as close to the balance sheet date as possible. 
D)  at various times throughout the year to the same group in the sample, so that the sample will not have a time bias. 
A)  several months before the year-end, so the auditor will have adequate time to perform alternate procedures if they are required. 
B)  at various times throughout the year to different sections of the sample, so that the entire sample is representative of account balances scattered throughout the year. 
C)  as close to the balance sheet date as possible. 
D)  at various times throughout the year to the same group in the sample, so that the sample will not have a time bias.

Question 19

The use of the negative (as opposed to the positive) form of receivables confirmation is indicated when

Accepted Answer

A)  internal control surrounding accounts receivable is considered to be ineffective. 
B)  there is reason to believe that a substantial number of accounts may be in dispute. 
C)  a large number of small balances are involved. 
D)  accounts receivable consists of current balances only. 
A)  internal control surrounding accounts receivable is considered to be ineffective. 
B)  there is reason to believe that a substantial number of accounts may be in dispute. 
C)  a large number of small balances are involved. 
D)  accounts receivable consists of current balances only.

Question 20

You have just been assigned to manage the audit of Cheap Music Downloads Inc. (CMD), a new large client of your firm. CMD is a subsidiary of a client of your firm that manufactures audio and video equipment for international distribution. CMD has been in operation for two years.
CMD runs a website that allows customers to order songs using their credit card. There are tens of thousands of small transactions daily. Once the credit card has been authorized by the credit card processing intermediary, CMD's web sales system generates a 16-digit sequential code that the customer uses to access the song via the website. CMD then records both the sale and the royalty for the song.
Quarterly, CMD remits royalties to artists based on the number of copies of each song that has sold if the accumulated royalty exceeds $25 for that artist. Artist royalties that do not exceed $25.00 will be paid every two years if there has not been a payment during that time.
All contracted royalty rates, artist names, and song titles are recorded in CMD's database tables.
Required:
Describe three internal controls that should exist over sales or royalty transactions or over the database tables. For each control:
1. State the control.
2. Describe (not just state) the audit assertion associated with the control (or state the purpose of the control).
3. Provide an audit test that you could use to test the control.

Accepted Answer

The answer of You have just been assigned to manage...

Poor controls over credit limit approval or in changing the credit limit in the master file may result in

To test for recorded sales for which there were no actual shipments, the auditor traces from the

Audit risk is assessed for

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

After the items for confirmation have been selected, the auditor must maintain control of the confirmations until

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

Outline the key areas that the auditor would review as part of general controls.

Which of the following audit procedures is a dual-purpose test?

When the client's internal control structure is adequate, the cutoff can usually be verified by

What is the primary focus with respect to error detection and correction for the online processing of sales transactions?

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

Most companies recognize sales when

Which of the following documents and records is used to record the packages, weights, and sizes shipped using an external trucking company?

If the internal controls for recording sales returns and allowances are evaluated as ineffective,

The most reliable evidence from confirmations is obtained when they are sent

The use of the negative (as opposed to the positive) form of receivables confirmation is indicated when

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

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

Poor controls over credit limit approval or in changing the credit limit in the master file may result in

To test for recorded sales for which there were no actual shipments, the auditor traces from the

Audit risk is assessed for

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

After the items for confirmation have been selected, the auditor must maintain control of the confirmations until

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

Outline the key areas that the auditor would review as part of general controls.

Which of the following audit procedures is a dual-purpose test?

When the client's internal control structure is adequate, the cutoff can usually be verified by

What is the primary focus with respect to error detection and correction for the online processing of sales transactions?

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

Most companies recognize sales when

Which of the following documents and records is used to record the packages, weights, and sizes shipped using an external trucking company?

If the internal controls for recording sales returns and allowances are evaluated as ineffective,

The most reliable evidence from confirmations is obtained when they are sent

The use of the negative (as opposed to the positive) form of receivables confirmation is indicated when

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

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