Question 1

Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.

Accepted Answer

A) True 
 B)False

Question 2

Homer and Moe,PC are auditing the financial statements of Lyoncraft,Inc.and decide to confirm a sample of accounts receivable.This test is performed by Homer and Moe primarily to substantiate which of the following?

Accepted Answer

A) existence of related party transactions. 
B) existence of accounts receivable. 
C) obligation of debt. 
D) cutoff of the allowance for bad debt. 
A) existence of related party transactions. 
B) existence of accounts receivable. 
C) obligation of debt. 
D) cutoff of the allowance for bad debt.

Question 3

Ratio analysis performed by the audit team may include the comparison of gross sales to industry averages and previous periods.

Accepted Answer

A) True 
 B)False

Question 4

For which of the following accounts receivable customer populations would the use of negative confirmations be most appropriate?

Accepted Answer

A) A retail truck and trailer sales company with high inherent risk and moderate control risk over the revenue cycle. 
B) A utility company with control risk over the revenue cycle assessed high. 
C) A mortgage banking company with control risk over the purchasing cycle assessed low. 
D) A cable company with control risk over the revenue cycle assessed low 
A) A retail truck and trailer sales company with high inherent risk and moderate control risk over the revenue cycle. 
B) A utility company with control risk over the revenue cycle assessed high. 
C) A mortgage banking company with control risk over the purchasing cycle assessed low. 
D) A cable company with control risk over the revenue cycle assessed low

Question 5

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?

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 6

Accounts receivable confirmations should be prepared on the auditing firm's letterhead.

Accepted Answer

A) True 
 B)False

Question 7

Monthly statements provide a detailed list of the customer's activity for the previous month and a listing of all open items.

Accepted Answer

A) True 
 B)False

Question 8

The audit team is required by auditing standards to make an ordinary presumption of the risk of fraud due to revenue misstatements on every engagement.

Accepted Answer

A) True 
 B)False

Question 9

The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

Accepted Answer

A) True 
 B)False

Question 10

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because

Accepted Answer

A) confirmations are selected based upon zip codes. 
B) a P.O.Box is more reliable than a street address. 
C) confirmations should be sent only to business addresses and not residential. 
D) the address may be routed to the client for retrieval and fraudulent signing. 
A) confirmations are selected based upon zip codes. 
B) a P.O.Box is more reliable than a street address. 
C) confirmations should be sent only to business addresses and not residential. 
D) the address may be routed to the client for retrieval and fraudulent signing.

Question 11

Internal control over the revenue cycle
White Floyd,Inc. ,a retail store,is concerned about the lack of control procedures over the recording of sales transactions.The company is concerned that the transactions might not be recorded accurately and valued properly in accordance with GAAP.Recommend control procedures to help ensure that transactions are recorded accurately and valued properly.

Accepted Answer

Control procedures that should be implem

Question 12

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

Accepted Answer

A) examine subsequent collections. 
B) test a sample of transactions to the general ledger. 
C) review loan agreements and board of directors' 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' minutes. 
D) derive an independent estimate of the allowance and compare it to pledged assets.

Question 13

Which of the following is a method used by companies to fraudulently inflate revenues?

Accepted Answer

A) use of hidden "side letters" giving the customer an irrevocable right to return the product. 
B) recording of fictitious sales. 
C) shipment of product not ordered by customers. 
D) all of the above. 
A) use of hidden "side letters" giving the customer an irrevocable right to return the product. 
B) recording of fictitious sales. 
C) shipment of product not ordered by customers. 
D) all of the above.

Question 14

A sample of positive confirmations is mailed for material accounts receivable balances.The auditor does not receive a response for many of the confirmations.Which of the following is not an acceptable alternative procedure?

Accepted Answer

A) subsequent collection. 
B) inquiry of management. 
C) mailing second and third confirmations. 
D) examination of supporting documents. 
A) subsequent collection. 
B) inquiry of management. 
C) mailing second and third confirmations. 
D) examination of supporting documents.

Question 15

All companies attempting to comply with GAAP should refer to the Securities and Exchange Commission for guidance as it supersedes all AICPA,PCAOB,FASB and EITF literature.

Accepted Answer

A) True 
 B)False

Question 16

Invoices are processed,including their mailing to customers,only subsequent to proof of valid delivery to customers.

Accepted Answer

A) True 
 B)False

Question 17

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?

Accepted Answer

A) shipping documents and tracing them to the sales journal. 
B) accounts receivable and tracing them to cash receipts. 
C) recorded sales transactions and tracing them to the general ledger. 
D) inventory records and tracing them to the shipping documents. 
A) shipping documents and tracing them to the sales journal. 
B) accounts receivable and tracing them to cash receipts. 
C) recorded sales transactions and tracing them to the general ledger. 
D) inventory records and tracing them to the shipping documents.

Question 18

An auditor's examination of the sales account using a cut-off test would most likely detect which of the following?

Accepted Answer

A) kiting. 
B) sales that should be deferred. 
C) lapping of accounts receivable. 
D) sales recorded in the wrong period. 
A) kiting. 
B) sales that should be deferred. 
C) lapping of accounts receivable. 
D) sales recorded in the wrong period.

Question 19

The auditor traces recorded sales to invoices,sales orders and shipping documents in order to substantiate which of the following assertions?

Accepted Answer

A) cutoff. 
B) completeness. 
C) legality. 
D) occurrence/existence. 
A) cutoff. 
B) completeness. 
C) legality. 
D) occurrence/existence.

Question 20

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

Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.

Homer and Moe,PC are auditing the financial statements of Lyoncraft,Inc.and decide to confirm a sample of accounts receivable.This test is performed by Homer and Moe primarily to substantiate which of the following?

Ratio analysis performed by the audit team may include the comparison of gross sales to industry averages and previous periods.

For which of the following accounts receivable customer populations would the use of negative confirmations be most appropriate?

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?

Accounts receivable confirmations should be prepared on the auditing firm's letterhead.

Monthly statements provide a detailed list of the customer's activity for the previous month and a listing of all open items.

The audit team is required by auditing standards to make an ordinary presumption of the risk of fraud due to revenue misstatements on every engagement.

The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because

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

Which of the following is a method used by companies to fraudulently inflate revenues?

A sample of positive confirmations is mailed for material accounts receivable balances.The auditor does not receive a response for many of the confirmations.Which of the following is not an acceptable alternative procedure?

All companies attempting to comply with GAAP should refer to the Securities and Exchange Commission for guidance as it supersedes all AICPA,PCAOB,FASB and EITF literature.

Invoices are processed,including their mailing to customers,only subsequent to proof of valid delivery to customers.

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?

An auditor's examination of the sales account using a cut-off test would most likely detect which of the following?

The auditor traces recorded sales to invoices,sales orders and shipping documents in order to substantiate which of the following assertions?

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing for Fraud

Audit of Acquisition and Payment Cycle and Inventory

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

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Exam 10: Auditing Revenue and Related Accounts

Lapping of accounts receivable is least likely to occur when there is an inadequate segregation of duties.

Homer and Moe,PC are auditing the financial statements of Lyoncraft,Inc.and decide to confirm a sample of accounts receivable.This test is performed by Homer and Moe primarily to substantiate which of the following?

Ratio analysis performed by the audit team may include the comparison of gross sales to industry averages and previous periods.

For which of the following accounts receivable customer populations would the use of negative confirmations be most appropriate?

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?

Accounts receivable confirmations should be prepared on the auditing firm's letterhead.

Monthly statements provide a detailed list of the customer's activity for the previous month and a listing of all open items.

The audit team is required by auditing standards to make an ordinary presumption of the risk of fraud due to revenue misstatements on every engagement.

The auditor would examine a sample of sales transactions throughout the entire period to determine if sales were recorded in the proper period when performing a sales cutoff test.

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because

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

Which of the following is a method used by companies to fraudulently inflate revenues?

A sample of positive confirmations is mailed for material accounts receivable balances.The auditor does not receive a response for many of the confirmations.Which of the following is not an acceptable alternative procedure?

All companies attempting to comply with GAAP should refer to the Securities and Exchange Commission for guidance as it supersedes all AICPA,PCAOB,FASB and EITF literature.

Invoices are processed,including their mailing to customers,only subsequent to proof of valid delivery to customers.

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?

An auditor's examination of the sales account using a cut-off test would most likely detect which of the following?

The auditor traces recorded sales to invoices,sales orders and shipping documents in order to substantiate which of the following assertions?

Auditing: Integral to the Economy

Corporate Governance and Audits

Judgmental and Ethical Decision-Making Frameworks and Associated Professional Standards

Audit Risk,business Risk,and Audit Planning

Internal Control Over Financial Reporting

Performing an Integrated Audit

A Framework for Audit Evidence

Tools Used in Gathering Audit Evidence

Auditing for Fraud

Audit of Acquisition and Payment Cycle and Inventory

Audit of Cash and Other Liquid Assets

Audit of Long-Lived Assets and Related Expense Accounts

Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

Ensuring Audit Quality in Completing the Audit

Auditors Reports

Professional Liability

Advanced Topics Concerning Complex Audit Judgments

Filters