Exam 14: Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Sales returns and allowances are often ignored by auditors because they are often immaterial.

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected "lapping" problem with trade accounts receivable?

When a company prepares multi-copy, prenumbered sales invoices at the time customer orders are received, there is a higher likelihood of failure to bill the customers than when sales invoices are prepared only after goods have been shipped.

A document prepared to initiate shipment of the goods sold by an independent shipper is the:

Which of the following is the appropriate point at which the auditor deems authorization to be critical?

One key internal control to prevent fictitious transactions in the sales and collection cycle is:

Customer billing is a critical process which auditors must understand. What are the most important aspects of billing and what are the related objectives?

In planning the audit, an auditor takes 3 basic steps in determining the audit procedures to be performed for any business cycle or class of transactions in order to gather audit evidence concerning possible misstatement due to error or fraud. List those three basic steps below.

Which of the following is not an account affected by the sales and collection cycle?

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?

To test for recorded sales for which there were no actual shipments, the auditor vouches from the:

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

In the accounts receivable subsidiary ledger the length of time the account has been due can be useful to the client and the auditor in preparing the:

The occurrence objective (assertion) is of primary importance when performing transaction testing for sales. List and discuss the three potential misstatements that audit procedures are designed to detect.

The ________ is a contract between a carrier (e.g., a trucking company) and the seller of goods that dictates the details surrounding the shipment of goods.

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?

The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the:

Sales should be recorded, at the earliest, when:

The most difficult type of cash embezzlement for the auditor to detect is when the cash is stolen before it can be recorded in the cash receipts journal.

Management's assertions for sales and collection activities remain the same whether sales are generated through traditional or e-commerce activities.