Question 1

Another way to obtain information about the internal control system is to take a single example of a transaction and _______ the process from its initiation to its recording in the accounting records.

Accepted Answer

The answer of Another way to obtain information about the...

Question 2

In the audit of accounts receivable, the most important emphasis should be on the:

Accepted Answer

A) completeness assertion. 
B) existence assertion. 
C) rights and obligations assertion. 
D) presentation and disclosure assertion.

Question 3

When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that:

Accepted Answer

A) shipments to customers were invoiced. 
B) shipments to customers were recorded as sales. 
C) recorded sales were shipped. 
D) invoiced sales were shipped.

Question 4

Alpha Brewery Corporation recorded sales through January 4, 2021, dating them December 31, 2020. This situation is an example of a violation of which of the following assertions?

Accepted Answer

A) Existence or occurrence. 
B) Completeness. 
C) Classification. 
D) Accuracy.

Question 5

In confirming a client's accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year's audit, the auditor most likely would choose:

Accepted Answer

A) customers with credit balances. 
B) small account balances. 
C) individual overdue balances. 
D) individual invoices.

Question 6

In tests of controls auditing, auditors need to define "deviations" in advance. Give seven examples of control compliance deviations related to a client's processing of credit sales transactions and the related assertion that was violated.

Accepted Answer

The answer of In tests of controls auditing, auditors need...

Question 7

What procedures should an auditor perform for a positive confirmation that is not returned by the client's customer?

Accepted Answer

The answer of What procedures should an auditor perform for...

Question 8

When a sample of customer accounts receivable is selected for vouching debits, auditors will vouch them to:

Accepted Answer

A) sales invoices with shipping documents. 
B) records of accounts receivable write-offs. 
C) cash remittance lists and bank deposit slips. 
D) credit files and reports.

Question 9

Accountants should be under orders to record sales and accounts receivable when:

Accepted Answer

A) the customer's order is received. 
B) all supporting documentation of shipping is in order. 
C) the item has been paid for. 
D) the terms are agreed upon.

Question 10

In the revenue and collection cycle, the auditor checks the numerical sequence of shipping documents. This procedure is related to which of the following assertions?

Accepted Answer

A) Existence. 
B) Completeness. 
C) Rights and obligations. 
D) Valuation or allocation.

Question 11

You are the auditor for Wilson Wholesale Products Inc. As part of the audit of accounts receivable, Wilson has provided you an electronic file representing its accounts receivable as of its fiscal year-end. The file includes the customer name, customer address, customer number, sales invoice number, sales invoice date, and amount.
Required:Describe three or more substantive audit procedures you might perform using computer-assisted audit tools and techniques (CAATs) with this computer file.

Accepted Answer

The answer of You are the auditor for Wilson Wholesale...

Question 12

To conceal defalcations involving receivables, a dishonest bookkeeper might charge which of the following accounts?

Accepted Answer

A) Miscellaneous income. 
B) Petty cash. 
C) Miscellaneous expense. 
D) Sales returns.

Question 13

Revenues are normally considered to have been earned when:

Accepted Answer

A) all possibility of return has expired. 
B) the company has substantially accomplished what it must to be entitled to the benefits. 
C) the cash is collected. 
D) goods have been shipped.

Question 14

The negative request form of accounts receivable confirmation is useful particularly when the: 
$\begin{array}{llcc}
  \text { Assessed Level of Risk of } &  \text { Number of } &  \text { Proper Consideratior }\
  \text { Material } &  \text {Small  }&  \text {by the Recipient Is  } \ 
  \text { Misstatement Relating to  } &  \text {Balances Is  }& \
  \text {Receivables Is  } 
\end{array}$
A.$\begin{array}{llcc}
  \quad\quad\quad\text { Low } &\quad\quad\quad\quad\quad\quad  \text { Many }&\quad\quad\quad\quad  \text { Likely } \
\end{array}$
B.$\begin{array}{llcc}
\quad\quad\quad \text {  Low} &\quad\quad\quad\quad\quad\quad  \text {  Few} &  \quad\quad\quad\quad\quad\text { Unlikely }\
\end{array}$
C.$\begin{array}{llcc}
\quad\quad\quad  \text {   High} & \quad\quad\quad\quad\quad\quad \text { Few }& \quad\quad\quad\quad\quad \text {  Likely} \
\end{array}$
D.$\begin{array}{llcc}
  \quad\quad\quad\text { High  } &\quad\quad\quad\quad\quad\quad  \text { Many } & \quad\quad\quad\quad\text {  Likely}\
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 15

Which of the following questions included in an internal control questionnaire would evaluate the valuation objective of revenues?

Accepted Answer

A) Is customer credit approved before orders are shipped? 
B) Are sales orders prenumbered? 
C) Are shipping documents required before a customer invoice is sent? 
D) Are payments received from the customer deposited in the bank in a timely manner?

Question 16

Is the confirmation of cash and accounts receivable required according to auditing standards? Explain.

Accepted Answer

The answer of Is the confirmation of cash and accounts...

Question 17

The file that contains sales transactions that were initiated in the system but are not yet completed is the:

Accepted Answer

A) credit check file. 
B) sales detail. 
C) inventory master. 
D) pending order master.

Question 18

The assertion that auditors will probably emphasize in the revenue and collection cycle is:

Accepted Answer

A) occurrence. 
B) completeness. 
C) accuracy. 
D) classification.

Question 19

Write-offs of doubtful accounts should be approved by:

Accepted Answer

A) the salesperson. 
B) the credit manager. 
C) the treasurer. 
D) the cashier.

Question 20

When an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following except:

Accepted Answer

A) send a second request. 
B) do nothing for immaterial balances. 
C) examine shipping documents. 
D) examine client correspondence files.

Exam 7: Revenue and Collection Cycle 279