Question 1

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

Accepted Answer

A)  recording subsequent period sales as current period sales 
B)  the use of "bill and holds" (goods are invoiced but not shipped) 
C)  understatement of bad debts 
D)  creation of fictitious sales that are misclassified as revenue 
A)  recording subsequent period sales as current period sales 
B)  the use of "bill and holds" (goods are invoiced but not shipped) 
C)  understatement of bad debts 
D)  creation of fictitious sales that are misclassified as revenue D

Question 2

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 A

Question 3

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 B

Question 4

Chong Manufacturing Limited (CML) is a small manufacturer that supplies parts to the automotive industry. CML deals primarily with second-tier companies and does not deal with car manufacturers directly. Last year, CML was required to implement EDI (electronic data interchange), otherwise two of its major customers would have taken their business elsewhere.
The installation was provided by Simon's Computer Company, a local computer store with expertise in EDI. One of CML's customers, Delta Parts Limited, also sent a purchasing agent to CML to help train staff at CML in the use of EDI and to walk through the first few transactions with CML accounting personnel to ensure that they could use the system effectively.
A typical EDI sale is processed as follows:
- A customer (e.g., Delta) sends a purchase order to CML, which is received via the Internet into an EDI in-basket. CML empties the EDI in-basket using its EDI software every hour, and the EDI software edits the purchase order for completeness and obvious errors. If there are no problems, then the purchase order is printed out and used by CML to process the order.
- Once the order has been processed, CML prepares its shipping documentation and invoice using its normal packaged accounting software. The shipping document and the electronic invoice are transferred to the EDI software and placed in an EDI out-basket. Accounting staff transmit the contents of the EDI out-basket to their customer.
- Once the customer receives the electronic shipping documents and electronic invoices, it will transfer the funds electronically to CML's bank account to pay for the goods delivered. This means that CML receives payment much faster than when invoices were mailed to customers.
Required:
A) What is the impact of the new EDI system on the audit engagement?
B) List some controls that should be included in the new EDI system.

Accepted Answer

A)Since it is a new sub-system, the audi

Question 5

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 6

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? 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 7

Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?

Accepted Answer

A)  Compare shipping documents with sales invoices. 
B)  Apply gross profit rates to inventory disposed of during the period. 
C)  Trace payments received subsequent to the balance sheet date. 
D)  Send accounts receivable confirmation requests. 
A)  Compare shipping documents with sales invoices. 
B)  Apply gross profit rates to inventory disposed of during the period. 
C)  Trace payments received subsequent to the balance sheet date. 
D)  Send accounts receivable confirmation requests.

Question 8

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 9

In the sales and collection cycle, the results of the tests of controls determine

Accepted Answer

A)  the extent to which planned detection risk is satisfied for each accounts receivable objective. 
B)  whether assessed control risk for sales and cash receipts needs to be revised. 
C)  if tests of details of balances need to be performed. 
D)  whether positive or negative confirmations should be used for this engagement. 
A)  the extent to which planned detection risk is satisfied for each accounts receivable objective. 
B)  whether assessed control risk for sales and cash receipts needs to be revised. 
C)  if tests of details of balances need to be performed. 
D)  whether positive or negative confirmations should be used for this engagement.

Question 10

The auditor has elected to conduct the following audit tests: reperform addition of the aged accounts receivable trial balance for the total column and for the columns depicting the aging. Which audit objective is associated with these audit tests?

Accepted Answer

A)  valuation 
B)  classification 
C)  accuracy 
D)  occurrence 
A)  valuation 
B)  classification 
C)  accuracy 
D)  occurrence

Question 11

After the auditor has identified the key internal controls and weaknesses and assessed control risk, it is appropriate to decide whether

Accepted Answer

A)  substantive tests will be increased sufficiently to justify the cost of performing tests of controls. 
B)  substantive tests will be reduced sufficiently to justify the cost of performing tests of controls. 
C)  tests of controls will be increased sufficiently to justify the cost of performing substantive tests. 
D)  tests of controls will be reduced sufficiently to justify the cost of performing substantive tests. 
A)  substantive tests will be increased sufficiently to justify the cost of performing tests of controls. 
B)  substantive tests will be reduced sufficiently to justify the cost of performing tests of controls. 
C)  tests of controls will be increased sufficiently to justify the cost of performing substantive tests. 
D)  tests of controls will be reduced sufficiently to justify the cost of performing substantive tests.

Question 12

What is one of the advantages of converting procedures from a design to a performance format?

Accepted Answer

A)  obtain audit evidence of better quality 
B)  help the auditor select the procedures to be performed 
C)  eliminate duplicate procedures 
D)  ensure compliance with Canadian Auditing Standards 
A)  obtain audit evidence of better quality 
B)  help the auditor select the procedures to be performed 
C)  eliminate duplicate procedures 
D)  ensure compliance with Canadian Auditing Standards

Question 13

Tests of details of balances relate to which part of the Audit Risk Model?

Accepted Answer

A)  control risk 
B)  inherent risk 
C)  substantive risk 
D)  planned detection risk 
A)  control risk 
B)  inherent risk 
C)  substantive risk 
D)  planned detection risk

Question 14

To determine that sales are accurately charged, the unit prices on the duplicate sales invoices are normally compared with

Accepted Answer

A)  the original invoices. 
B)  the amounts recorded in the sales journal for that transaction. 
C)  the amounts posted to the customer's account in the accounts receivable master file. 
D)  an approved item master file. 
A)  the original invoices. 
B)  the amounts recorded in the sales journal for that transaction. 
C)  the amounts posted to the customer's account in the accounts receivable master file. 
D)  an approved item master file.

Question 15

Which of the following is an example of a key internal control for an online system that would help ensure that recorded sales are for the amount of goods shipped and are accurately billed and recorded?

Accepted Answer

A)  Shipping documents are matched to invoices. 
B)  Shipping details are automatically used as the invoicing source. 
C)  Shipping documents are prenumbered and accounted for. 
D)  Transactions are summarized daily for posting to the general ledger. 
A)  Shipping documents are matched to invoices. 
B)  Shipping details are automatically used as the invoicing source. 
C)  Shipping documents are prenumbered and accounted for. 
D)  Transactions are summarized daily for posting to the general ledger.

Question 16

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 17

You and your audit team went to a local mall for your lunch break. While there, you dropped off a roll of film at a photo store, and planned to pick it up after work that day. You strike up a conversation with your supervisor about digital versus film photography and your supervisor says, "Next week, you are going to be working at a client that just happens to be a group of photography stores. Tell me, what controls do you think should be programmed into the store cash registers to help ensure that sales transactions are accurate and complete?"
Required:
Answer your supervisor's question.

Accepted Answer

Check digits and validity checks: For ex

Question 18

Glee Inc. is a manufacturer of musical instruments and its year end is September 30th. 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 30th 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 19

When errors are found, a common and standard assumption in practice is to assume

Accepted Answer

A)  a 100% assumption for all errors. 
B)  that the actual sample errors are representative of the population errors. 
C)  that the population errors are larger than the sample errors. 
D)  that the population errors are smaller than the sample errors. 
A)  a 100% assumption for all errors. 
B)  that the actual sample errors are representative of the population errors. 
C)  that the population errors are larger than the sample errors. 
D)  that the population errors are smaller than the sample errors.

Question 20

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.

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

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

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

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

Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?

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

In the sales and collection cycle, the results of the tests of controls determine

The auditor has elected to conduct the following audit tests: reperform addition of the aged accounts receivable trial balance for the total column and for the columns depicting the aging. Which audit objective is associated with these audit tests?

After the auditor has identified the key internal controls and weaknesses and assessed control risk, it is appropriate to decide whether

What is one of the advantages of converting procedures from a design to a performance format?

Tests of details of balances relate to which part of the Audit Risk Model?

To determine that sales are accurately charged, the unit prices on the duplicate sales invoices are normally compared with

Which of the following is an example of a key internal control for an online system that would help ensure that recorded sales are for the amount of goods shipped and are accurately billed and recorded?

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?

When errors are found, a common and standard assumption in practice is to assume

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

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

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

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

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

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

Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?

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

In the sales and collection cycle, the results of the tests of controls determine

The auditor has elected to conduct the following audit tests: reperform addition of the aged accounts receivable trial balance for the total column and for the columns depicting the aging. Which audit objective is associated with these audit tests?

After the auditor has identified the key internal controls and weaknesses and assessed control risk, it is appropriate to decide whether

What is one of the advantages of converting procedures from a design to a performance format?

Tests of details of balances relate to which part of the Audit Risk Model?

To determine that sales are accurately charged, the unit prices on the duplicate sales invoices are normally compared with

Which of the following is an example of a key internal control for an online system that would help ensure that recorded sales are for the amount of goods shipped and are accurately billed and recorded?

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?

When errors are found, a common and standard assumption in practice is to assume

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

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