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

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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.

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(True/False)

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Question 1

Correct Answer:

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True

Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders, granting credit, shipping goods, billing customers, and recording sales.

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Question 2

Correct Answer:

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True

You are an audit manager for Rodgers & Co.and have recently taken on a new client, Manufacturing Company.You are in the initial stages of planning the audit and have decided to start gathering information about the sales/collection cycle of the business.List below the classes of transactions that you need to gather audit evidence for in designing your audit procedures.

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Question 3

Correct Answer:

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The five classes of transactions that comprise the sales and collection cycle are:
•Sales
•Cash receipts
•Sales returns and allowances
•Write-off of uncollectible accounts
•Bad debt expense

Which one of the following is of the least concern to the auditor when designing substantive tests of transactions for the sales/collection cycle?

(Multiple Choice)

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Question 4

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.

(Multiple Choice)

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Question 5

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

(Multiple Choice)

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Question 6

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:

(Multiple Choice)

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Question 7

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because:

(Multiple Choice)

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Question 8

Which of the following is the appropriate point at which the auditor deems authorization to be critical?

(Multiple Choice)

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Question 9

Violations of the existence objective for sales are of greater concern to the auditor than violations of the completeness objective.

(True/False)

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Question 10

Before goods are shipped on account, a properly authorized person must:

(Multiple Choice)

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Question 11

The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.

(True/False)

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Question 12

In a lockbox system, bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address.

(True/False)

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Question 13

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

(Multiple Choice)

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Question 14

In converting from a design format audit program to a performance format audit program, procedures are combined.

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Question 15

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

(Multiple Choice)

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Question 16

Credit should be approved before goods are shipped to a customer.

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Question 17

Transaction-related audit objectives are essentially the same for processing credit memos as for sales with certain differences.Which of the following are two key differences?

(Multiple Choice)

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Question 18

A ________ is a document that indicates a request for merchandise by a customer.

(Multiple Choice)

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Question 19

Prenumbered documents will only be useful for control purposes if:

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Question 20

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

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.

Sales transactions are the result of the following five functions in the sales and collection cycle: processing customer orders, granting credit, shipping goods, billing customers, and recording sales.

Which one of the following is of the least concern to the auditor when designing substantive tests of transactions for the sales/collection cycle?

A ________ is a document that is matched with the customer order to assure that the correct quantity and type of goods are shipped.

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

The total of the individual account balances in the accounts receivable subsidiary ledger should equal the:

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because:

Which of the following is the appropriate point at which the auditor deems authorization to be critical?

Violations of the existence objective for sales are of greater concern to the auditor than violations of the completeness objective.

Before goods are shipped on account, a properly authorized person must:

The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.

In a lockbox system, bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address.

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

In converting from a design format audit program to a performance format audit program, procedures are combined.

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

Credit should be approved before goods are shipped to a customer.

Transaction-related audit objectives are essentially the same for processing credit memos as for sales with certain differences.Which of the following are two key differences?

A ________ is a document that indicates a request for merchandise by a customer.

Prenumbered documents will only be useful for control purposes if:

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy and Audit Program

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Payroll and Personnel Cycle

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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