Exam 10: Auditing the Revenue Process

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely:

Identify whether the following tests are tests of controls, substantive analytical procedures, tests of details of transactions, or tests of details of account balances. 1)Select a sample of customer receivables and send positive confirmations to each customer. 2)Examine monthly bank reconciliations for the internal auditors' initials indicating internal verification and review of the reconciliation. 3)Select a sample of entries in the sales journal and trace each to the shipping documents. 4)Compute receivable turnover and compare with previous years. 5)For a sample of new customers, determine whether credit approval was properly administered and documented. 6)Compare the dates on a sample of sales invoices with the dates of shipment and the dates the transactions were recorded in the sales journal.

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an:

In general, revenue is recognized when:

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an:

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's assertion about account balances of:

What is channel stuffing?

During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

Which is not a key segregation of duties for the revenue process? Different parties should:

According to FASB ASC 606, which of the following is not part of the five-step approach for revenue recognition?

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of:

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

Order entry is the initial function in the revenue cycle.

Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment, the CPA would be likely to:

Explain how revenue recognition is important to the audit of the revenue process.

Match the test of controls described below to the appropriate assertion it is used to test: -Recompute financial information on a sample of sales invoices