Question 1

The revenue process affects numerous accounts in the financial statements.

Accepted Answer

A) True 
 B)False

Question 2

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

Accepted Answer

A)  Many customers merely sign and return the confirmation without verifying its details. 
B)  Recipients usually respond only if they disagree with the information on the request. 
C)  Customers may not be inclined to report understatement errors in their accounts. 
D)  Auditors typically select many accounts with low recorded balances to be confirmed. 
A)  Many customers merely sign and return the confirmation without verifying its details. 
B)  Recipients usually respond only if they disagree with the information on the request. 
C)  Customers may not be inclined to report understatement errors in their accounts. 
D)  Auditors typically select many accounts with low recorded balances to be confirmed.

Question 3

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

Accepted Answer

A)  The cashier prepares the daily deposit. 
B)  The cashier makes the daily deposit at a local bank. 
C)  The cashier posts the receipts to the accounts receivable subsidiary ledger cards. 
D)  The cashier endorses the checks. 
A)  The cashier prepares the daily deposit. 
B)  The cashier makes the daily deposit at a local bank. 
C)  The cashier posts the receipts to the accounts receivable subsidiary ledger cards. 
D)  The cashier endorses the checks.

Question 4

In auditing accounts receivable, the negative form of confirmation request most likely would be used when

Accepted Answer

A)  Recipients are likely to return positive confirmation requests without verifying the accuracy of the information. 
B)  The combined assessed level of inherent and control risk relative to accounts receivable is low. 
C)  A small number of accounts receivable are involved but a relatively large number of errors are expected. 
D)  The auditor performs a dual purpose test that assesses control risk and obtains substantive evidence. 
A)  Recipients are likely to return positive confirmation requests without verifying the accuracy of the information. 
B)  The combined assessed level of inherent and control risk relative to accounts receivable is low. 
C)  A small number of accounts receivable are involved but a relatively large number of errors are expected. 
D)  The auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

Question 5

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to

Accepted Answer

A)  Evaluate internal control over credit sales. 
B)  Test the accuracy of recorded credit sales. 
C)  Evaluate the allowance for doubtful accounts. 
D)  Verify the existence of the recorded receivables. 
A)  Evaluate internal control over credit sales. 
B)  Test the accuracy of recorded credit sales. 
C)  Evaluate the allowance for doubtful accounts. 
D)  Verify the existence of the recorded receivables.

Question 6

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the

Accepted Answer

A)  Meter department records to the billing (sales) register. 
B)  Billing (sales) register to the meter department records. 
C)  Accounts receivable ledger to the billing (sales) register. 
D)  Billing (sales) register to the accounts receivable ledger. 
A)  Meter department records to the billing (sales) register. 
B)  Billing (sales) register to the meter department records. 
C)  Accounts receivable ledger to the billing (sales) register. 
D)  Billing (sales) register to the accounts receivable ledger.

Question 7

Match the test of controls described below to the appropriate assertion it is used to test:

Accepted Answer

The answer of Match the test of controls described below...

Question 8

Which of the following is not an inherent risk factor for the revenue process?

Accepted Answer

A)  Complexity of revenue recognition issues. 
B)  Difficulty of auditing transactions. 
C)  Special industry practices. 
D)  The entity does not follow its stated policies for sales order approvals. 
A)  Complexity of revenue recognition issues. 
B)  Difficulty of auditing transactions. 
C)  Special industry practices. 
D)  The entity does not follow its stated policies for sales order approvals.

Question 9

Revenue is realized when a product or service is exchanged for cash or a promise to pay cash or other assets that can be converted into cash.

Accepted Answer

A) True 
 B)False

Question 10

Cooper, CPA is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely

Accepted Answer

A)  Send positive confirmation requests. 
B)  Send negative confirmation requests. 
C)  Examine evidence of subsequent cash receipts. 
D)  Inspect the internal records, such as copies of the tax invoices that were mailed to the residents. 
A)  Send positive confirmation requests. 
B)  Send negative confirmation requests. 
C)  Examine evidence of subsequent cash receipts. 
D)  Inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

Question 11

Which of the following procedures would ordinarily be expected to best reveal improper cutoff of sales at the balance sheet date?

Accepted Answer

A)  Compare shipping documents with sales records. 
B)  Apply gross profit rates to inventory disposed of during the period. 
C)  Trace payments received subsequent to the balance sheet date. 
D)  Send accounts receivable confirmation requests. 
A)  Compare shipping documents with sales records. 
B)  Apply gross profit rates to inventory disposed of during the period. 
C)  Trace payments received subsequent to the balance sheet date. 
D)  Send accounts receivable confirmation requests.

Question 12

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?

Accepted Answer

A)  The owner reviews errors in billings to customers and postings to the subsidiary ledger. 
B)  A controller receives the monthly bank statement directly and reconciles the checking accounts. 
C)  The owner reviews credit memos before they are recorded. 
D)  The controller reconciles the total of the detailed accounts receivable accounts to the amount shown in the ledger. 
A)  The owner reviews errors in billings to customers and postings to the subsidiary ledger. 
B)  A controller receives the monthly bank statement directly and reconciles the checking accounts. 
C)  The owner reviews credit memos before they are recorded. 
D)  The controller reconciles the total of the detailed accounts receivable accounts to the amount shown in the ledger.

Question 13

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 14

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31. By this procedure, the auditor would be most likely to learn about which of the following?

Accepted Answer

A)  An October invoice was improperly computed. 
B)  An October check from a customer was posted in error to the account of another customer with a similar name. 
C)  An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period. 
D)  An account balance is past due and should be written-off. 
A)  An October invoice was improperly computed. 
B)  An October check from a customer was posted in error to the account of another customer with a similar name. 
C)  An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period. 
D)  An account balance is past due and should be written-off.

Question 15

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them. Which of the following is the most appropriate audit procedure?

Accepted Answer

A)  Examine shipping documents. 
B)  Review collections during the year being examined. 
C)  Intensify the study of the entity's system of internal control with respect to receivables. 
D)  Increase the balance in the allowance for uncollectible accounts. 
A)  Examine shipping documents. 
B)  Review collections during the year being examined. 
C)  Intensify the study of the entity's system of internal control with respect to receivables. 
D)  Increase the balance in the allowance for uncollectible accounts.

Question 16

Tracing copies of sales invoices to shipping documents will provide evidence that all

Accepted Answer

A)  Shipments to customers were recorded as receivables. 
B)  Billed sales were shipped. 
C)  Accounts receivable ledger is complete. 
D)  Shipments to customers were billed. 
A)  Shipments to customers were recorded as receivables. 
B)  Billed sales were shipped. 
C)  Accounts receivable ledger is complete. 
D)  Shipments to customers were billed.

Question 17

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

Accepted Answer

A)  Request the senders to mail the original forms to the auditor or the auditor may follow up with a telephone call to verify the response. 
B)  Examine subsequent cash receipts for the accounts in question. 
C)  Consider the e-mail responses to the confirmations to be exceptions. 
D)  Mail second requests to the e-mail respondents. 
A)  Request the senders to mail the original forms to the auditor or the auditor may follow up with a telephone call to verify the response. 
B)  Examine subsequent cash receipts for the accounts in question. 
C)  Consider the e-mail responses to the confirmations to be exceptions. 
D)  Mail second requests to the e-mail respondents.

Question 18

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about

Accepted Answer

A)  Valuation and allocation. 
B)  Completeness. 
C)  Existence. 
D)  Rights and obligations. 
A)  Valuation and allocation. 
B)  Completeness. 
C)  Existence. 
D)  Rights and obligations.

Question 19

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 20

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.

The revenue process affects numerous accounts in the financial statements.

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

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

In auditing accounts receivable, the negative form of confirmation request most likely would be used when

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the

Match the test of controls described below to the appropriate assertion it is used to test:

Which of the following is not an inherent risk factor for the revenue process?

Revenue is realized when a product or service is exchanged for cash or a promise to pay cash or other assets that can be converted into cash.

Which of the following procedures would ordinarily be expected to best reveal improper cutoff of sales at the balance sheet date?

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?

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

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31. By this procedure, the auditor would be most likely to learn about which of the following?

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them. Which of the following is the most appropriate audit procedure?

Tracing copies of sales invoices to shipping documents will provide evidence that all

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

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about

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

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

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Filters

Exam 10: Auditing the Revenue Process

The revenue process affects numerous accounts in the financial statements.

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

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

In auditing accounts receivable, the negative form of confirmation request most likely would be used when

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the

Match the test of controls described below to the appropriate assertion it is used to test:

Which of the following is not an inherent risk factor for the revenue process?

Revenue is realized when a product or service is exchanged for cash or a promise to pay cash or other assets that can be converted into cash.

Which of the following procedures would ordinarily be expected to best reveal improper cutoff of sales at the balance sheet date?

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?

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

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31. By this procedure, the auditor would be most likely to learn about which of the following?

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them. Which of the following is the most appropriate audit procedure?

Tracing copies of sales invoices to shipping documents will provide evidence that all

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

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about

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

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

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 Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing 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

Filters