Exam 12: Audit of the Revenue Cycle

For sales, the occurrence transaction-related audit objective affects the existence balance-related audit objective. For cash receipts, the occurrence transaction-related audit objective affects which balance-related audit objective?

The most important test of details of balances to determine the existence of recorded accounts receivable is

A) Describe each of the six key control activities for sales. B) When assessing planned control risk for sales, the auditor is concerned about proper authorization at three key points. Discuss each of these three points. C) When testing the existence objective for sales, the auditor is concerned with the possibility of three types of misstatements. One type is sales being included in the journal for which no shipment was made. Discuss the other two types of misstatements.

An audit procedure that compares the name, amount, and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting

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

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the accounts receivables'

You are the audit senior responsible for a large photofinishing centre and camera store. The store uses automated cash registers tied to inventory (also known as point-of-sale devices). The point-of-sale devices take advantage of automated procedures and controls that can be programmed to reduce errors and improve controls over completeness of transactions. Required: Provide examples of interdependent controls that should be used to complement the programmed controls.

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

Office Design Inc. (ODI) has been your audit client for five years. ODI designs and sells office furniture such as desks, cabinets, and couches used in office reception areas. ODI has sales in Canada and the U.S., with five distribution locations where furniture is available to prospective purchasers to try out before purchasing. These locations are in Toronto, Montreal, Halifax, New York, and Chicago. The company uses custom-designed software for its order processing and sales, which is kept current by one of the five information systems personnel. The Vice President of Finance is new. Executive management is paid a salary and a bonus based on the annual net income of ODI. Unfortunately, the accounting staff at the head office (in Montreal) has been downsized from ten people to six due to a recent slowdown in sales. Your review of the aged accounts receivable trial balance revealed that one third of the accounts have been outstanding for more than one year. ODI's profits have declined substantially from last year. Its line of credit and bank loans are at their maximum and the company is considering selling its U.S. operations to provide cash flow. Prior year working papers revealed few errors and indicate that you considered management integrity to be good. However, due to segregation issues, you did not rely on the internal controls in the prior year. Required: A) What issues in corporate governance and in the control environment affect your assessment of internal controls for revenue? How does this affect the decision to conduct substantive testing (i.e. exclusion of tests of controls)? B) What is the likely assessment of computer general controls? How does this affect the type of audit testing conducted at ODI?

As the quality of the enterprise risk management process declines, and the overall quality of internal controls declines,

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

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

For each control on which the auditor plans to rely to reduce assessed control risk, he or she must

It is important that sales be billed and recorded in the journal as soon as possible after

When there are problems with program change procedures or with access controls, the auditor may choose to

Which of the following key controls helps ensure that sales transactions are classified to the correct account?

Before goods are shipped on account to a new customer, a properly authorized person must

A document prepared for shipment of the goods sold using a trucking company is called the

One of the key internal controls to prevent transactions in the sales and collection cycle to fictitious customers is to

Stefano is performing a review of the accounts receivable for large and unusual amounts. Of the following accounts receivables, Stefano should pay special attention to an account receivable