Question 1

Which of the following strategies most likely could improve the accuracy of the confirmation of accounts receivable?

Accepted Answer

A) Including a monthly statement of the customer's account with the confirmation. 
B) Restricting the selection of accounts to be confirmed to those customers with relatively large balances. 
C) Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail. 
D) Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner. 
A) Including a monthly statement of the customer's account with the confirmation. 
B) Restricting the selection of accounts to be confirmed to those customers with relatively large balances. 
C) Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail. 
D) Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner. A

Question 2

Which of the following is the best argument against the use of negative accounts receivable confirmations?

Accepted Answer

A) The cost-per-response is excessively high. 
B) There is no way of knowing if the intended recipients received them. 
C) Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. 
D) The inference drawn from receiving no reply may not be correct. 
A) The cost-per-response is excessively high. 
B) There is no way of knowing if the intended recipients received them. 
C) Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. 
D) The inference drawn from receiving no reply may not be correct. D

Question 3

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn about which of the following?

Accepted Answer

A) One of the cashiers has been covering a personal embezzlement by lapping. 
B) One of the sales clerks has not been preparing charge slips for credit sales to family and friends. 
C) One of the EDP control clerks has been removing all sales invoices applicable to his account from the data file. 
D) The credit manager has misappropriated remittances from customers whose accounts have been written off. 
A) One of the cashiers has been covering a personal embezzlement by lapping. 
B) One of the sales clerks has not been preparing charge slips for credit sales to family and friends. 
C) One of the EDP control clerks has been removing all sales invoices applicable to his account from the data file. 
D) The credit manager has misappropriated remittances from customers whose accounts have been written off. A

Question 4

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

Accepted Answer

A) valuation. 
B) classification. 
C) existence. 
D) completeness. 
A) valuation. 
B) classification. 
C) existence. 
D) completeness.

Question 5

Which of the following is not an issue related to the valuation of accounts receivable?

Accepted Answer

A) The credit granting function. 
B) A proper allowance for doubtful accounts. 
C) The net realizable value of accounts receivable. 
D) Proper cutoff. 
A) The credit granting function. 
B) A proper allowance for doubtful accounts. 
C) The net realizable value of accounts receivable. 
D) Proper cutoff.

Question 6

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

Accepted Answer

A) The positive confirmation form must always be used to confirm all balances regardless of size. 
B) A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances. 
C) A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables. 
D) The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory. 
A) The positive confirmation form must always be used to confirm all balances regardless of size. 
B) A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances. 
C) A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables. 
D) The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

Question 7

When a sample of sales transactions recorded in the sales journal is traced back to the customer orders and shipping documents, the auditor is testing the ________ assertion.

Accepted Answer

A) cutoff 
B) authorization and accuracy 
C) completeness 
D) occurrence 
A) cutoff 
B) authorization and accuracy 
C) completeness 
D) occurrence

Question 8

To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

Accepted Answer

A) customer order file. 
B) bills of lading file. 
C) open invoice file. 
D) sales invoice file. 
A) customer order file. 
B) bills of lading file. 
C) open invoice file. 
D) sales invoice file.

Question 9

The revenue process affects numerous accounts in the financial statements.

Accepted Answer

A) True 
 B)False

Question 10

A positive confirmation requests that customers respond whether they agree or not with the amount due to the entity stated in the confirmation.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following misstatements is not related to the completeness assertion for revenue?

Accepted Answer

A) Goods are shipped, but revenue is not recorded. 
B) This year's revenue is recorded next year. 
C) Next year's revenue is recorded this year. 
D) Revenue is not recognized for services that have been performed. 
A) Goods are shipped, but revenue is not recorded. 
B) This year's revenue is recorded next year. 
C) Next year's revenue is recorded this year. 
D) Revenue is not recognized for services that have been performed.

Question 12

Which of the following internal control activities most likely would ensure that all billed sales are correctly posted to the accounts receivable ledger?

Accepted Answer

A) Daily sales summaries are compared to daily postings to the accounts receivable ledger. 
B) Each sales invoice is supported by a prenumbered shipping document. 
C) The accounts receivable ledger is reconciled daily to the control account in the general ledger. 
D) Each shipment on credit is supported by a prenumbered sales invoice. 
A) Daily sales summaries are compared to daily postings to the accounts receivable ledger. 
B) Each sales invoice is supported by a prenumbered shipping document. 
C) The accounts receivable ledger is reconciled daily to the control account in the general ledger. 
D) Each shipment on credit is supported by a prenumbered sales invoice.

Question 13

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Accepted Answer

A) no duplicate shipments or billings occurred. 
B) shipments to customers were properly billed. 
C) all goods ordered by customers were shipped. 
D) all prenumbered sales invoices were accounted for. 
A) no duplicate shipments or billings occurred. 
B) shipments to customers were properly billed. 
C) all goods ordered by customers were shipped. 
D) all prenumbered sales invoices were accounted for.

Question 14

Accounting standards require entities to follow a five-step approach for recognizing revenue.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process?

Accepted Answer

A) Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme. 
B) Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables. 
C) Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped. 
D) Omission of shipping documents could go undetected, causing an understatement of inventory. 
A) Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme. 
B) Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables. 
C) Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped. 
D) Omission of shipping documents could go undetected, causing an understatement of inventory.

Question 16

According to the Association of Certified Fraud Examiners, there are eight common methods for committing financial statement fraud. List 4 of the 8 methods.

Accepted Answer

1. Early revenue recognition
2. Holding

Question 17

To reduce the risks associated with accepting electronic responses to requests for confirmation of accounts receivable, an auditor most likely would:

Accepted Answer

A) validate the sender of electronic information. 
B) examine subsequent cash receipts for the accounts in question. 
C) consider the electronic responses to the confirmations to be exceptions. 
D) mail second requests to the electronic respondents. 
A) validate the sender of electronic information. 
B) examine subsequent cash receipts for the accounts in question. 
C) consider the electronic responses to the confirmations to be exceptions. 
D) mail second requests to the electronic respondents.

Question 18

Which of the following might be detected by an auditor's review of the entity's sales cutoff?

Accepted Answer

A) Excessive goods returned for credit. 
B) Unrecorded sales discounts. 
C) Lapping of year-end accounts receivable. 
D) Overstated sales for the year. 
A) Excessive goods returned for credit. 
B) Unrecorded sales discounts. 
C) Lapping of year-end accounts receivable. 
D) Overstated sales for the year.

Question 19

To achieve good internal control, which department should perform the activities of matching shipping documents with sales orders?

Accepted Answer

A) Billing. 
B) Shipping. 
C) Credit. 
D) Sales Order. 
A) Billing. 
B) Shipping. 
C) Credit. 
D) Sales Order.

Question 20

Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell.

Accepted Answer

A) True 
 B)False

Exam 10: Auditing the Revenue Process

Which of the following strategies most likely could improve the accuracy of the confirmation of accounts receivable?

Which of the following is the best argument against the use of negative accounts receivable confirmations?

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates respondents' exceptions and comments. By this procedure, the auditor would be most likely to learn about which of the following?

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

Which of the following is not an issue related to the valuation of accounts receivable?

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

When a sample of sales transactions recorded in the sales journal is traced back to the customer orders and shipping documents, the auditor is testing the ________ assertion.

To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:

The revenue process affects numerous accounts in the financial statements.

A positive confirmation requests that customers respond whether they agree or not with the amount due to the entity stated in the confirmation.

Which of the following misstatements is not related to the completeness assertion for revenue?

Which of the following internal control activities most likely would ensure that all billed sales are correctly posted to the accounts receivable ledger?

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Accounting standards require entities to follow a five-step approach for recognizing revenue.

Which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process?

According to the Association of Certified Fraud Examiners, there are eight common methods for committing financial statement fraud. List 4 of the 8 methods.

To reduce the risks associated with accepting electronic responses to requests for confirmation of accounts receivable, an auditor most likely would:

Which of the following might be detected by an auditor's review of the entity's sales cutoff?

To achieve good internal control, which department should perform the activities of matching shipping documents with sales orders?

Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell.

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

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