Exam 14: Audit of the Sales and Collection Cycle: Tests of Controls

Explain each of the following types of documents and indicate the class of transactions in which they are commonly used. 1. customer order 2. shipping document 3. remittance advice 4. sales returns and allowance journal 5. uncollectible account authorization form

Which one the following procedures performed for the billing function provides evidence for the completeness assertion?

As a test of control,the auditor examines sales invoices for supporting documents.The relevant transaction-related audit objective is

For each significant internal control deficiency identified by the auditor,he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements.

When auditing sales returns and allowances,the emphasis is normally on testing the completeness objective.

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with accounting standards.

Tracing from source documents to the journal is useful for testing the existence objective.

Which type of misstatement is always a fraud?

Match seven of the terms for documents and records (a-k)with the descriptions provided below (1-7): -A document for communicating the description,quantity,and related information for goods ordered by a customer.This is frequently used to indicate credit approval and authorization for shipment.

The sales journal is generated from the sales transaction file.

When auditors evaluate sales returns and allowances,a primary emphasis is on the objective of occurrence.

Which of the following is a business function related to sales returns and allowances?

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "brick and mortar" business are

The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on

The auditor is concerned about authorization at three key points.What are the key points?

In designing substantive audit procedures for tests of transactions for sales,the auditor needs to test for evidence of misstatements due to errors or fraud.Describe two potential errors (unintentional)and one intentional (fraud).

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger purposefully enters cash received into the wrong customer's account that employee may be suspected of

Separation of duties in the sales and collection cycle should mandate that the credit-granting function be separate from the sales function.

A bill of lading is a written contract between the seller and the buyer.

Sales returns and allowances are often ignored by auditors because they are often immaterial.