Exam 12: Audit of the Revenue Cycle

Frag Jones Company has a December year end with a tight reporting deadline, so the auditors confirmed the accounts receivable as of November 30 using positive confirmations. In addition to following up confirmation discrepancies, the auditor should

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

Which of the following data elements would be included in the customer master file as semi-permanent information?

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

A common way to evaluate the adequacy of the bad debt allowance is to

A) State the five specific transaction-related audit objectives for cash receipts and describe one common test of controls for each objective. B) Discuss what is meant by proof of cash receipts and explain its purpose.

Confirmation of individual accounts receivable balances directly with debtors will, of itself, normally provide evidence concerning the

A) State the five specific transaction-related audit objectives for sales and describe one common test of controls for each objective. B) Describe three tests of controls commonly used to test the accuracy objective for sales.

For cash receipts, the occurrence transaction-related audit objective affects the completeness balance-related audit objective of accounts receivable. Which accounts receivable balance-related audit objective does the cash receipts transaction-related audit objective of completeness affect?

The two primary classes of transactions in the sales and collection cycle are

You are the auditor of Foundry Inc., a company that manufactures chocolate bars and assorted candies. The description of the sales and collection cycle for Foundry is as follows. Clients and Credit Limits Foundry has 50 clients, as it mostly sells to grocery stores' central purchasing departments or distributors. For each customer, Foundry performs a credit check prior to setting the credit limit for the client. The credit limit is reviewed each year. In the past year, the credit limits were increased by 10%. This is due to the growth in Foundryès product lines and increased demand from customers. This also came at the same time the CEO of Foundry set the objective of growing the company's revenue by 25% over the next two years. Increasing the credit limit has helped Foundry move towards that objective. Allowance for Doubtful Accounts The allowance for doubtful accounts is calculated by the controller by taking a percentage of the total sales for the month. The controller has been taking 3% of total sales. The estimate has not been revised in the current year, but it has always been sufficient to cover for any write-offs incurred. Required: For each of the two areas discussed above, identify the risk areas and the most likely misstatements for Foundry.

A communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a

Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for dollar-unit sampling is "Accept the conclusion that the book value is not misstated by a material amount if

Your audit client has many different types of accounts receivable: Canadian, American, and other international accounts; and short- and long-term accounts. There are also some sales on consignment. The company has used forward exchange contracts to reduce its exposure due to foreign exchange fluctuations. How will this affect the audit engagement?

One of the most important test of details of balances for accounts receivable is

The information systems audit specialist on your audit team has indicated that the general controls over program changes are inadequate for all application cycles. What impact does this have on your audit of sales invoice processing?

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

Which of the following circumstances would indicate that positive confirmations should be used on this engagement?

The auditor traces items from the source documents to the journals in order to satisfy the

What information would be considered semi-permanent as well as transaction information?