Question 1

For each significant internal control deficiency identified by the auditor,he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements.

Accepted Answer

A) True 
 B)False  True

Question 2

A document that initiates shipment of goods and indicates the description of the merchandise,the quantity shipped,and customer name and address is the:

Accepted Answer

A)   bill of lading.
B)   sales invoice.
C)   picking ticket.
D)   vendor invoice. A

Question 3

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

Accepted Answer

A) True 
 B)False  True

Question 4

The document that accompanies the customer's payment is the:

Accepted Answer

A)   credit memo.
B)   remittance advice.
C)   vendor invoice.
D)   monthly statement.

Question 5

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

Accepted Answer

A)   The cashier prepares the daily deposit.
B)   The cashier makes the daily deposit at a local bank.
C)   The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
D)   The cashier endorses the checks.

Question 6

The preparation of a sales invoice is the final step in the sales and collection cycle.

Accepted Answer

A) True 
 B)False

Question 7

The document that requires adjustments to the customers subsidiary ledger account is the:

Accepted Answer

A)   bill of lading.
B)   sales invoice.
C)   credit memo.
D)   monthly statement.

Question 8

The appropriate test of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel.

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

A)   bill of lading
B)   sales invoice
C)   picking ticket
D)   remittance advice

Question 10

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with accounting standards.

Accepted Answer

A) True 
 B)False

Question 11

When assessing planned control risk for sales:

Accepted Answer

A)   the key internal controls and deficiencies for sales will be the same for every company.
B)   the audit objectives for sales will differ from company to company.
C)   a flowchart is required to help assess control risk for sales.
D)   assessing control risk for sales is a highly subjective decision.

Question 12

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

Accepted Answer

A)   Sales returns and allowances
B)   Write-off of uncollectible accounts
C)   Bad debt expense
D)   Interest Income

Question 13

Misstatements involving the completeness objective for sales lead to overstatements of assets and income.

Accepted Answer

A) True 
 B)False

Question 14

In determining the level of audit efficiency,once the auditor has identified the key internal controls and identified any deficiencies in order to determine the level of control risk appropriate for a private company client,it is appropriate to decide whether:

Accepted Answer

A)   substantive tests can be reduced sufficiently to justify costs of performing tests of controls.
B)   substantive tests can be increased sufficiently to justify costs of performing tests of controls.
C)   tests of controls can be increased sufficiently to justify costs of performing substantive tests.
D)   tests of controls can be reduced sufficiently to justify costs of performing substantive tests.

Question 15

In a lockbox system,bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address.

Accepted Answer

A) True 
 B)False

Question 16

The estimation of bad debts expense relates to the write-off of uncollectible accounts.

Accepted Answer

A) True 
 B)False

Question 17

An audit procedure that compares the name,amount,and dates shown on remittance advices,either paper of electronic via direct deposit,with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting:

Accepted Answer

A)   kiting.
B)   lapping.
C)   illicit write-offs of customers as uncollectible accounts.
D)   sales without proper credit authorization.

Question 18

Which of the following is a business function related to sales returns and allowances?

Accepted Answer

A)   Processing customer orders
B)   Writing off uncollectible accounts
C)   Processing and recording credit memos
D)   Granting credit

Question 19

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.

Accepted Answer

The answer of In planning the audit,an auditor takes 3...

Question 20

The completeness transaction-related audit objective must be considered when determining key controls for for sales.List three key controls that must be considered when cash received is recorded in the cash receipts journal.

Accepted Answer

The answer of The completeness transaction-related audit objective must be...

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

For each significant internal control deficiency identified by the auditor,he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements.

A document that initiates shipment of goods and indicates the description of the merchandise,the quantity shipped,and customer name and address is the:

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

The document that accompanies the customer's payment is the:

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

The preparation of a sales invoice is the final step in the sales and collection cycle.

The document that requires adjustments to the customers subsidiary ledger account is the:

The appropriate test of controls for separation of duties are ordinarily restricted to the auditor's observations of activities and discussions with personnel.

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.

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with accounting standards.

When assessing planned control risk for sales:

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

Misstatements involving the completeness objective for sales lead to overstatements of assets and income.

In determining the level of audit efficiency,once the auditor has identified the key internal controls and identified any deficiencies in order to determine the level of control risk appropriate for a private company client,it is appropriate to decide whether:

In a lockbox system,bank employees are responsible for opening cash receipts and maintaining records of all payments made by customers at the lockbox address.

The estimation of bad debts expense relates to the write-off of uncollectible accounts.

An audit procedure that compares the name,amount,and dates shown on remittance advices,either paper of electronic via direct deposit,with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting:

Which of the following is a business function related to sales returns and allowances?

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.

The completeness transaction-related audit objective must be considered when determining key controls for for sales.List three key controls that must be considered when cash received is recorded in the cash receipts journal.