Question 1

An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the existence or occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting

Accepted Answer

A)   opening and closing inventory balances.
B)   cash receipts and accounts receivable.
C)   shipping and receiving activities.
D)   cutoffs of sales and purchases. B

Question 2

Data Corporation has just computerized its billing and accounts receivable record keeping.You want to make maximum use of the new computer in your audit of Data Corporation.Which of the following audit techniques could not be performed through a computer program?

Accepted Answer

A)   Tracing audited cash receipts to accounts receivable credits.
B)   Selecting accounts to be confirmed on a random basis.
C)   Examining sales invoices for completeness, consistency between different items, valid conditions, and reasonable amounts.
D)   Resolving differences reported by customers on confirmation requests. D

Question 3

To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment,the auditor would select a sample of transactions from the population represented by the

Accepted Answer

A)   customer order file.
B)   bills of lading file.
C)   open invoice file.
D)   sales invoice file. B

Question 4

When reviewing bank confirmations for any liens on receivables,the auditor is testing the ______________ assertion.

Accepted Answer

A)   valuation and allocation
B)   rights and obligations
C)   existence
D)   completeness

Question 5

Which of the following is not an inherent risk factor for the revenue process?

Accepted Answer

A)   Complexity of revenue recognition issues.
B)   Difficulty of auditing transactions.
C)   Special industry practices.
D)   The entity does not follow its stated policies for sales order approvals.

Question 6

Revenue is realized when a product or service is exchanged for cash or a promise to pay cash or other assets that can be converted into cash.

Accepted Answer

A) True 
 B)False

Question 7

What is channel stuffing?

Accepted Answer

A)   A company records revenue before delivery terms can be arranged.
B)   A company records revenue on goods that will be shipped overseas.
C)   A company induces distributors to buy substantially more inventory than they can promptly resell.
D)   A company alters the terms and conditions of recorded sales to entice customers to accept delivery of goods.

Question 8

Once a CPA has determined that accounts receivable has increased because of slow collection in a "tight money" environment,the CPA would be likely to

Accepted Answer

A)   increase the balance in the allowance for bad debts account.
B)   review the going concern ramifications.
C)   require the entity to tighten its credit policy.
D)   expand tests regarding the collectability of receivables.

Question 9

To achieve good internal control,which department should perform the activities of matching shipping documents with sales orders and preparing daily sales summaries?

Accepted Answer

A)   Billing.
B)   Shipping.
C)   Credit.
D)   Sales Order.

Question 10

Identify four of the seven primary functions in the revenue cycle and describe each function.

Accepted Answer

The answer of Identify four of the seven primary functions...

Question 11

An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also

Accepted Answer

A)   records the journal entry to recognize the cash receipt.
B)   prepares the monthly bank reconciliation.
C)   prepares the daily deposit slip.
D)   approves customer discounts.

Question 12

An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account as of October 31.By this procedure,the auditor would be most likely to learn about which of the following?

Accepted Answer

A)   An October invoice was improperly computed.
B)   An October check from a customer was posted in error to the account of another customer with a similar name.
C)   An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.
D)   An account balance is past due and should be written-off.

Question 13

Upon receipt of customers' checks in the mailroom,a responsible employee should prepare a listing of remittances that is forwarded to the cashier.A copy of the listing should be sent to the

Accepted Answer

A)   internal auditor to investigate the listing for unusual transactions.
B)   treasurer to compare the listing with the monthly bank statement.
C)   accounts receivable bookkeeper to update the subsidiary accounts receivable records.
D)   entity's bank to compare the listing with the cashier's deposit slip.

Question 14

Which of the following is not an issue related to the valuation of accounts receivable?

Accepted Answer

A)   The valuation of revenue that makes up the detail of accounts receivable.
B)   A proper allowance for doubtful accounts.
C)   The net realizable value of accounts receivable.
D)   Proper cutoff.

Question 15

Which of the following internal control activities most likely would ensure that all billed sales are correctly posted to the accounts receivable ledger?

Accepted Answer

A)   Daily sales summaries are compared to daily postings to the accounts receivable ledger.
B)   Each sales invoice is supported by a prenumbered shipping document.
C)   The accounts receivable ledger is reconciled daily to the control account in the general ledger.
D)   Each shipment on credit is supported by a prenumbered sales invoice.

Question 16

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

Accepted Answer

A)   many customers merely sign and return the confirmation without verifying its details.
B)   recipients usually respond only if they disagree with the information on the request.
C)   customers may not be inclined to report understatement errors in their accounts.
D)   auditors typically select many accounts with low recorded balances to be confirmed.

Question 17

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable.Which of the following statements is true regarding the auditor's use of confirmations?

Accepted Answer

A)   The positive confirmation form must always be used to confirm all balances regardless of size.
B)   A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.
C)   A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables.
D)   The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

Question 18

Immediately upon receipt of cash,a responsible employee should

Accepted Answer

A)   record the amount in the cash receipts journal.
B)   prepare a listing of remittances.
C)   update the subsidiary accounts receivable records.
D)   prepare a deposit slip in triplicate.

Question 19

If the objective of a test of details is to detect the overstatement of sales,the auditor should trace transactions from the

Accepted Answer

A)   cash receipts journal to the sales journal.
B)   sales journal to the cash receipts journal.
C)   shipping documents to the accounting records.
D)   accounting records to the shipping documents.

Question 20

Cooper,CPA is auditing the financial statements of a small rural municipality.The receivable balances represent residents' delinquent real estate taxes.Internal control at the municipality is weak.To determine the existence of the accounts receivable balances at the balance sheet date,Cooper would most likely

Accepted Answer

A)   send positive confirmation requests.
B)   send negative confirmation requests.
C)   examine evidence of subsequent cash receipts.
D)   inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

Exam 10: Auditing the Revenue Process