Exam 10: Auditing the Revenue Process

Credit authorization is used to determine if a customer is able to pay for goods.

Auditors sometimes use ratios as audit evidence.For example,an unexplained increase in the ratio of gross profit to sales may suggest which of the following possibilities?

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

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

According to the SEC's SAB No.101,which of the following is not necessary for revenue recognition?

Mill Company uses a batch processing method to process its sales transactions.Data on Mill's sales transaction tapes are electronically sorted by customer number and are subjected to programmed edit checks in preparing its invoices,sales journals,and updated customer account balances.One of the direct outputs of the creation of these tapes most likely would be a

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

An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also

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 of which of the following?

The XYZ Company billing department has decided to assign one employee to each of its customers.This employee will be responsible for granting credit to the client and then handling the billing.XYZ believes this will result in better customer service,because the client will only have to deal with one person and that one person will be very familiar with the credit terms.As an auditor,would you agree with XYZ's decision?

When tracing a sample of shipping documents from throughout the year to the details of the sales invoices and to the sales journal and customers' accounts receivable subsidiary ledger,the auditor is testing the _____________ assertion.

Which of the following statements would an auditor most likely add to the negative form of confirmations of accounts receivable to encourage timely consideration by the recipient?

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?

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

Assume an account receivable confirmation is returned with a note to the auditor describing a difference between your client's records and the customer's records.Clearly describe below two potential non-misstatement timing differences that could cause a discrepancy between a client's receivable records and his/her customer's records.The timing differences you describe should be such that after investigation you would determine that your client's receivable balance is not misstated due to these differences.

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

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

Listed below are six assertions regarding the financial presentations made in the revenue process.For each,give an example of how an auditor could use one of the types of documents contained in the revenue process to test the assertion. Occurrence Completeness Authorization Accuracy Cutoff Classification