Question 1

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

Accepted Answer

A) Cash is realized on the sale of the product. 
B) A price is discussed based upon the customer's resale of the product. 
C) The customer is given the option to return the product at any time. 
D) The product is transferred to the customer. 
A) Cash is realized on the sale of the product. 
B) A price is discussed based upon the customer's resale of the product. 
C) The customer is given the option to return the product at any time. 
D) The product is transferred to the customer.

Question 2

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?

Accepted Answer

A) Trace bill of lading to sales invoice and sales journal. 
B) Confirm balances of unpaid invoices with customers. 
C) Examine subsequent collections. 
D) Scan sales journal for duplicate entries. 
A) Trace bill of lading to sales invoice and sales journal. 
B) Confirm balances of unpaid invoices with customers. 
C) Examine subsequent collections. 
D) Scan sales journal for duplicate entries.

Question 3

Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

Accepted Answer

A) True 
 B)False

Question 4

In the audit of the revenue of Hiram Manufacturing Company,the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit.The auditors compare the documents to the sales journal in order to test which of the following assertions?

Accepted Answer

A) Existence of sales. 
B) Presentation and disclosure of receivables. 
C) Cutoff of sales transactions. 
D) Completeness of receivables. 
A) Existence of sales. 
B) Presentation and disclosure of receivables. 
C) Cutoff of sales transactions. 
D) Completeness of receivables.

Question 5

In the audit of accounting estimates,such as the allowance for doubtful accounts,the auditor strives to provide reasonable assurance about which of the following?

Accepted Answer

A) All material accounting estimates have been developed properly. 
B) The estimates are reasonable. 
C) The estimates are presented in accordance with GAAP. 
D) All of the above are true. 
A) All material accounting estimates have been developed properly. 
B) The estimates are reasonable. 
C) The estimates are presented in accordance with GAAP. 
D) All of the above are true.

Question 6

The major risk associated with receivables is related to which of the following?

Accepted Answer

A) They may be sold to a bank with recourse. 
B) They may be recorded as long-term when in fact they will be realized in the current period. 
C) They will not be realized for the entire amount due. 
D) They are pledged as collateral as disclosed in the footnotes to financial statements. 
A) They may be sold to a bank with recourse. 
B) They may be recorded as long-term when in fact they will be realized in the current period. 
C) They will not be realized for the entire amount due. 
D) They are pledged as collateral as disclosed in the footnotes to financial statements.

Question 7

A sample of positive confirmations is mailed for material accounts receivable balances.Frequently there is a lack of response.Which of the following is not an acceptable alternative procedure?

Accepted Answer

A) Reviewing collections on the account subsequent to the confirmation date. 
B) Inquiry of management. 
C) Mailing second and third confirmations. 
D) Examination of supporting documents. 
A) Reviewing collections on the account subsequent to the confirmation date. 
B) Inquiry of management. 
C) Mailing second and third confirmations. 
D) Examination of supporting documents.

Question 8

To determine whether any accounts receivable are pledged or assigned to others,the auditor would most likely perform which of the following procedures?

Accepted Answer

A) Examine subsequent collections. 
B) Test a sample of transactions to the general ledger. 
C) Review loan agreements and board of directors' meeting minutes. 
D) Derive an independent estimate of the allowance and compare it to pledged assets. 
A) Examine subsequent collections. 
B) Test a sample of transactions to the general ledger. 
C) Review loan agreements and board of directors' meeting minutes. 
D) Derive an independent estimate of the allowance and compare it to pledged assets.

Question 9

Invoices are normally prepared when the organization receives confirmation that goods were delivered to customers.

Accepted Answer

A) True 
 B)False

Question 10

While electronic confirmations of receivables are more efficient,they are seldom used because they are not considered as reliable as paper confirmations.

Accepted Answer

A) True 
 B)False

Question 11

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks?

Accepted Answer

A) Examining sales contracts and inquiry of management. 
B) Confirming sales with customers. 
C) Discussing the transactions with qualified members of the Financial Accounting Standards Board. 
D) Comparing shipping documents with invoices. 
A) Examining sales contracts and inquiry of management. 
B) Confirming sales with customers. 
C) Discussing the transactions with qualified members of the Financial Accounting Standards Board. 
D) Comparing shipping documents with invoices.

Question 12

The audit team typically reviews journal entries in the receivables ledger for unusual entries that may be indicators of fraudulent activity.

Accepted Answer

A) True 
 B)False

Question 13

In an audit of financial statements,risks related to a high rate of return of products sold include which of the following?

Accepted Answer

A) Sales that are recorded improperly. 
B) An estimate of accrued returns that reduces net income. 
C) A reduction of net sales for an increase to the sales returns and allowance account. 
D) Consignment goods that are returned and forwarded to third parties. 
A) Sales that are recorded improperly. 
B) An estimate of accrued returns that reduces net income. 
C) A reduction of net sales for an increase to the sales returns and allowance account. 
D) Consignment goods that are returned and forwarded to third parties.

Question 14

Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is the fifth step in the five-step revenue recognition process prescribed by ASC 606?

Accepted Answer

A) Satisfaction of a performance obligation. 
B) Execution of an enforceable contract for the transfer of goods or services. 
C) Collection of substantially all of the transaction price from the customer. 
D) None of the above. 
A) Satisfaction of a performance obligation. 
B) Execution of an enforceable contract for the transfer of goods or services. 
C) Collection of substantially all of the transaction price from the customer. 
D) None of the above.

Question 16

Valid evidence obtained in an audit for testing the cutoff of sales includes receiving reports for returned merchandise.

Accepted Answer

A) True 
 B)False

Question 17

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Accepted Answer

A) Physical observation of customer facilities. 
B) Review of subsequent collections. 
C) Analysis of the aged trial balance. 
D) A confirmation to the client management for customer accounts. 
A) Physical observation of customer facilities. 
B) Review of subsequent collections. 
C) Analysis of the aged trial balance. 
D) A confirmation to the client management for customer accounts.

Question 18

Substantive procedures for sales and receivables assertions The auditor for Knowles,Inc.is attempting to determine whether the recorded sales and accounts receivable are supported by valid transactions.Identify the assertions being tested and develop the substantive procedures to be used to satisfy the auditor's objectives.

Accepted Answer

The auditor is testing the existence and

Question 19

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

Accepted Answer

A) To provide the customer a copy of the transaction. 
B) To provide evidence of authorization and recording. 
C) To offer credit to customers. 
D) To generate back orders. 
A) To provide the customer a copy of the transaction. 
B) To provide evidence of authorization and recording. 
C) To offer credit to customers. 
D) To generate back orders.

Question 20

An example of a test for completeness in the revenue cycle includes the sampling of shipping documents and tracing them to the sales journal and general ledger.

Accepted Answer

A) True 
 B)False

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?

Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

In the audit of the revenue of Hiram Manufacturing Company,the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit.The auditors compare the documents to the sales journal in order to test which of the following assertions?

In the audit of accounting estimates,such as the allowance for doubtful accounts,the auditor strives to provide reasonable assurance about which of the following?

The major risk associated with receivables is related to which of the following?

A sample of positive confirmations is mailed for material accounts receivable balances.Frequently there is a lack of response.Which of the following is not an acceptable alternative procedure?

To determine whether any accounts receivable are pledged or assigned to others,the auditor would most likely perform which of the following procedures?

Invoices are normally prepared when the organization receives confirmation that goods were delivered to customers.

While electronic confirmations of receivables are more efficient,they are seldom used because they are not considered as reliable as paper confirmations.

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks?

The audit team typically reviews journal entries in the receivables ledger for unusual entries that may be indicators of fraudulent activity.

In an audit of financial statements,risks related to a high rate of return of products sold include which of the following?

Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

Which of the following is the fifth step in the five-step revenue recognition process prescribed by ASC 606?

Valid evidence obtained in an audit for testing the cutoff of sales includes receiving reports for returned merchandise.

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

An example of a test for completeness in the revenue cycle includes the sampling of shipping documents and tracing them to the sales journal and general ledger.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Legal Liability

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Long-Term Liabilities and Stockholders Equity Transactions

Completing a Quality Audit

Audit Reports

Filters

Exam 9: Auditing the Revenue Cycle

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?

Testing cutoff involves procedures applied to sales transactions selected from those recorded immediately prior to period end and immediately following period end.

In the audit of the revenue of Hiram Manufacturing Company,the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit.The auditors compare the documents to the sales journal in order to test which of the following assertions?

In the audit of accounting estimates,such as the allowance for doubtful accounts,the auditor strives to provide reasonable assurance about which of the following?

The major risk associated with receivables is related to which of the following?

A sample of positive confirmations is mailed for material accounts receivable balances.Frequently there is a lack of response.Which of the following is not an acceptable alternative procedure?

To determine whether any accounts receivable are pledged or assigned to others,the auditor would most likely perform which of the following procedures?

Invoices are normally prepared when the organization receives confirmation that goods were delivered to customers.

While electronic confirmations of receivables are more efficient,they are seldom used because they are not considered as reliable as paper confirmations.

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks?

The audit team typically reviews journal entries in the receivables ledger for unusual entries that may be indicators of fraudulent activity.

In an audit of financial statements,risks related to a high rate of return of products sold include which of the following?

Ratio analysis performed by the audit team may include the comparison of gross profit percentage to industry averages.

Which of the following is the fifth step in the five-step revenue recognition process prescribed by ASC 606?

Valid evidence obtained in an audit for testing the cutoff of sales includes receiving reports for returned merchandise.

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

An example of a test for completeness in the revenue cycle includes the sampling of shipping documents and tracing them to the sales journal and general ledger.

Quality Auditing: Why It Matters

The Auditors Responsibilities Regarding Fraud and Mechanisms to Address Fraud: Regulation and Corporate Governance

Internal Control Over Financial Reporting: Responsibilities of Management and the External Auditor

Professional Legal Liability

Professional Auditing Standards and the Audit Opinion Formulation Process

Audit Evidence

Planning the Audit: Identifying and Responding to the Risks of Material Misstatement

Specialized Audit Tools: Sampling and Generalized Audit Software

Auditing Cash and Marketable Securities

Auditing Inventory, Goods and Services, and Accounts Payable: the Acquisition and Payment Cycle

Auditing Long-Lived Assets: Acquisition, Use, Impairment, and Disposal

Auditing Long-Term Liabilities and Stockholders Equity Transactions

Completing a Quality Audit

Audit Reports

Filters