Exam 10: Auditing Revenue and Related Accounts

Confirmations of receivables at an interim date When internal controls are strong,the auditor may decide to confirm receivables before year end.Roll-forward procedures are then used to obtain adequate evidence for the roll-forward period.Discuss why the auditor would want to confirm receivables before balance sheet date,the risks involved,and at least three of the roll-forward procedures that the auditor performs to gain assurance on the roll-forward period.

Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing

Which of the following criteria must be met in order to recognize revenue in the current accounting period?

Hardman and Jennings,LLP,an audit firm,compares bad debt expense of a client in the current period to bad debt recorded for the past three periods.Hardman and Jennings is performing which type of analysis?

A method of testing for the completeness of sales is to test the sequence of sales invoices used during the period under audit.

Accounts receivable Controls In the financial statements,there are many risks associated with an audit that must be considered.Identify and discuss five separate risks that may exist related to accounts receivable.

The primary difference between positive and negative confirmations used in the audit of accounts receivable is

The auditor of James Corporation should be alert to the risk of material misstatements when James Corporation's cash flows from operations are negative and net income (rather than loss)is reported.

Edge and Gregg,LLP would most likely discover channel stuffing in the financial statements of a client through the use of trend analysis.

In planning an audit for the revenue cycle,the auditor must realize the integrated relationship of evidence found between the accounts receivable and the notes payable accounts.

Confirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been pledged or discounted.

The relationship between the sales cycle and an inventory system can best be noted in which of the following examples?

The revenue cycle involves the procedures in generating a sales order,shipping the products,recording the transaction and collecting the receivable.

A tendency for fraud exists when stock options are close to becoming exercised by executives and financial personnel.

Lithgow and Harris,CPAs are performing the audit of WildFlower Grocery Stores.Lithgow and Harris relates annual revenue by sales per square feet and sales per customer.What type of analysis is Lithgow and Harris most likely performing?

Credit approval policies are implemented by organizations primarily to