Question 1

The accurate recording of sales transactions concerns all of the following except for

Accepted Answer

A)  proper credit authorization. 
B)  shipping the amount of goods ordered. 
C)  accurately billing for the amount of goods shipped. 
D)  accurately recording the amount billed in the accounting records. 
A)  proper credit authorization. 
B)  shipping the amount of goods ordered. 
C)  accurately billing for the amount of goods shipped. 
D)  accurately recording the amount billed in the accounting records.

Question 2

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

Accepted Answer

A)  sales invoice 
B)  vendor invoice 
C)  customer order 
D)  sales order 
A)  sales invoice 
B)  vendor invoice 
C)  customer order 
D)  sales order

Question 3

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).

Accepted Answer

1. Unintentional-sales included in the j

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

When designing tests of controls and substantive tests of transactions for cash receipts, it is important to remember that

Accepted Answer

A)  the test of controls are designed to test for monetary misstatements. 
B)  auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales. 
C)  the tests of controls are not dependent on the controls the auditor identifies. 
D)  the tests of controls are not dependent on whether the company being audited is publicly traded. 
A)  the test of controls are designed to test for monetary misstatements. 
B)  auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales. 
C)  the tests of controls are not dependent on the controls the auditor identifies. 
D)  the tests of controls are not dependent on whether the company being audited is publicly traded.

Question 7

Which of the following tests of controls is useful to test the transaction-related audit objective of posting and summarization?

Accepted Answer

A)  Observe whether monthly statements are sent. 
B)  Observe unrecorded cash at a point in time. 
C)  Observe whether the accountant reconciles the bank account. 
D)  Observe endorsement of incoming checks. 
A)  Observe whether monthly statements are sent. 
B)  Observe unrecorded cash at a point in time. 
C)  Observe whether the accountant reconciles the bank account. 
D)  Observe endorsement of incoming checks.

Question 8

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

Accepted Answer

A)  Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. 
B)  Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts. 
C)  Have a mandatory vacation policy for employees who both handle cash and enter cash receipts into the system. 
D)  Request that customer's payment checks be made payable to the company and addressed to the treasurer. 
A)  Separate duties so that the bookkeeper in charge of the general ledger has no access to incoming mail. 
B)  Separate duties so that no employee has access to both checks from customers and currency from daily cash receipts. 
C)  Have a mandatory vacation policy for employees who both handle cash and enter cash receipts into the system. 
D)  Request that customer's payment checks be made payable to the company and addressed to the treasurer.

Question 9

The bill of lading is often generated electronically once the goods have been shipped to a customer, and automatically generates the related sales invoice as well as the required entry in the sales journal to record the sale.

Accepted Answer

A) True 
 B)False

Question 10

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

Accepted Answer

A) True 
 B)False

Question 11

When sales invoices are automatically calculated and posted by a computer, the auditor may be able to reduce substantive tests of transactions for which, if any, assertion?

Accepted Answer

A)  accuracy 
B)  existence 
C)  completeness 
D)  none of the above 
A)  accuracy 
B)  existence 
C)  completeness 
D)  none of the above

Question 12

When dealing with the processing and recording of cash receipts,

Accepted Answer

A)  the most important concern is the theft of cash. 
B)  theft can only occur before the receipts are entered into the records. 
C)  cash receipts should be deposited at least monthly. 
D)  the monthly statement is used to prepare the cash receipts journal. 
A)  the most important concern is the theft of cash. 
B)  theft can only occur before the receipts are entered into the records. 
C)  cash receipts should be deposited at least monthly. 
D)  the monthly statement is used to prepare the cash receipts journal.

Question 13

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

Accepted Answer

A)  determination of correct delivery address 
B)  credit approval 
C)  matching of shipping document with sales invoice 
D)  receipt of sales order from the customer 
A)  determination of correct delivery address 
B)  credit approval 
C)  matching of shipping document with sales invoice 
D)  receipt of sales order from the customer

Question 14

Prenumbered documents are intended to help

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 15

At the completion of the tests of controls and substantive tests of transactions, auditors must analyze each exception to determine its cause and the implication of the exception on assessed control risk.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

When auditing sales returns and allowances, tests performed by the auditor are usually focused on whether the returns and the allowances were appropriately authorized and approved, internally, by proper personnel working.

Accepted Answer

A) True 
 B)False

Question 19

Which accounts are involved in the sales class of transactions?

Accepted Answer

A)  accounts receivable and sales returns and allowances 
B)  cash and allowance for uncollectible accounts 
C)  sales allowances and accounts receivable 
D)  accounts receivable and sales 
A)  accounts receivable and sales returns and allowances 
B)  cash and allowance for uncollectible accounts 
C)  sales allowances and accounts receivable 
D)  accounts receivable and sales

Question 20

The appropriate tests of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel.

Accepted Answer

A) True 
 B)False

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

The accurate recording of sales transactions concerns all of the following except for

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

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).

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

When designing tests of controls and substantive tests of transactions for cash receipts, it is important to remember that

Which of the following tests of controls is useful to test the transaction-related audit objective of posting and summarization?

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

The bill of lading is often generated electronically once the goods have been shipped to a customer, and automatically generates the related sales invoice as well as the required entry in the sales journal to record the sale.

The receipt of a customer order from a customer is the starting point for the entire sales and collection cycle.

When sales invoices are automatically calculated and posted by a computer, the auditor may be able to reduce substantive tests of transactions for which, if any, assertion?

When dealing with the processing and recording of cash receipts,

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

Prenumbered documents are intended to help

At the completion of the tests of controls and substantive tests of transactions, auditors must analyze each exception to determine its cause and the implication of the exception on assessed control risk.

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

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.

When auditing sales returns and allowances, tests performed by the auditor are usually focused on whether the returns and the allowances were appropriately authorized and approved, internally, by proper personnel working.

Which accounts are involved in the sales class of transactions?

The appropriate tests of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel.

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 Materiality

Assessing the Risk of Material Misstatement

Fraud Auditing

Internal Control and Coso Framework

Assessing Control Risk and Reporting on Internal Controls

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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