Question 1

During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

Accepted Answer

A)  The owner reviews errors in billings to customers and postings to the subsidiary ledger.
B)  A controller receives the monthly bank statement directly and reconciles the checking accounts.
C)  The owner reviews credit memos before they are recorded.
D)  The controller reconciles the total of the detailed accounts receivable accounts to the amount shown in the ledger.

Question 2

According to FASB ASC 606, which of the following is not part of the five-step approach for revenue recognition?

Accepted Answer

A)  Identify the contract(s) with a customer.
B)  Determine the transaction price.
C)  Determine whether the buyer will take a discount.
D)  Identify the performance obligations in the contract.

Question 3

In general, revenue is recognized when:

Accepted Answer

A)  goods are shipped.
B)  an entity satisfies a performance obligation.
C)  it is recorded in the sales journal.
D)  it is received in cash.

Question 4

Order entry is the initial function in the revenue cycle.

Accepted Answer

A) True 
 B)False

Question 5

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's assertion about account balances of:

Accepted Answer

A)  accuracy, valuation and allocation.
B)  completeness.
C)  existence or occurrence.
D)  rights and obligations.

Question 6

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely:

Accepted Answer

A)  send positive confirmation requests.
B)  send negative confirmation requests.
C)  examine evidence of subsequent cash receipts instead of sending confirmation requests.
D)  use statistical sampling instead of sending confirmation requests.

Question 7

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

Accepted Answer

A)  classification.
B)  cutoff.
C)  occurrence.
D)  authorization and accuracy.

Question 8

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

Accepted Answer

A)  An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct.
B)  A client-prepared letter reminding the customer that a nonresponse will cause a second request to be sent.
C)  An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the auditor.
D)  A client-prepared statement of account showing the details of the customer's account balance.

Question 9

Match the test of controls described below to the appropriate assertion it is used to test:
-Recompute financial information on a sample of sales invoices

Accepted Answer

A)  Accuracy
B)  Authorization
C)  Classification
D)  Occurrence
E)  CompletenessF) Cutoff

Question 10

Which is not a key segregation of duties for the revenue process? Different parties should:

Accepted Answer

A)  prepare shipping orders and prepare bills of lading.
B)  perform the credit and billing functions.
C)  perform the shipping and billing functions.
D)  receive cash and adjust accounts receivable.

Question 11

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

Accepted Answer

A)  Employees responsible for authorizing sales and bad debt write-offs are denied access to cash.
B)  Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts.
C)  Employees involved in the credit-granting function are separated from the sales function.
D)  Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Question 12

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Accepted Answer

A)  Scan the sales journal for sequential and unusual entries.
B)  Examine shipping documents for matching sales invoices.
C)  Compare the accounts receivable ledger to daily sales summaries.
D)  Inspect unused sales invoices for consecutive prenumbering.

Question 13

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an:

Accepted Answer

A)  understatement of revenues, receivables, and inventory.
B)  overstatement of revenues and receivables and an understatement of inventory.
C)  understatement of revenues and receivables and an overstatement of inventory.
D)  overstatement of revenues, receivables, and inventory.

Question 14

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 15

Explain how revenue recognition is important to the audit of the revenue process.

Accepted Answer

To determine whether the financial state...

Question 16

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

Accepted Answer

A)  The credit manager's opinion.
B)  An aging schedule of past due accounts.
C)  Subsequent year collections of amounts in accounts receivable at the balance sheet date.
D)  Ratios calculated showing the past relationship of the valuation allowance to net credit sales.

Question 17

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 18

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of:

Accepted Answer

A)  authorization and accuracy.
B)  completeness.
C)  cutoff.
D)  occurrence.

Question 19

Identify whether the following tests are tests of controls, substantive analytical procedures, tests of details of transactions, or tests of details of account balances.
1)Select a sample of customer receivables and send positive confirmations to each customer.
2)Examine monthly bank reconciliations for the internal auditors' initials indicating internal verification and review of the reconciliation.
3)Select a sample of entries in the sales journal and trace each to the shipping documents.
4)Compute receivable turnover and compare with previous years.
5)For a sample of new customers, determine whether credit approval was properly administered and documented.
6)Compare the dates on a sample of sales invoices with the dates of shipment and the dates the transactions were recorded in the sales journal.

Accepted Answer

1)Tests of details of account ...

Question 20

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an:

Accepted Answer

A)  understatement of revenues, receivables, and inventory.
B)  overstatement of revenues and receivables and an understatement of inventory.
C)  understatement of revenues and receivables and an overstatement of inventory.
D)  overstatement of revenues, receivables, and inventory.

Exam 10: Auditing the Revenue Process

Which is not a key segregation of duties for the revenue process? Different parties should:

Correct Answer
verified

In general, revenue is recognized when:

Correct Answer
verified

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Correct Answer
verified

Correct Answer
verified
1)Tests of details of account ...
View Answer

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

Correct Answer
verified

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

Correct Answer
verified

Order entry is the initial function in the revenue cycle.

Correct Answer
verified

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:

Correct Answer
verified

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an:

Correct Answer
verified

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

Correct Answer
verified

According to FASB ASC 606, which of the following is not part of the five-step approach for revenue recognition?

Correct Answer
verified

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely:

Correct Answer
verified

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an:

Correct Answer
verified

Explain how revenue recognition is important to the audit of the revenue process.

Correct Answer
verified
To determine whether the financial state...
View Answer

Match the test of controls described below to the appropriate assertion it is used to test: -Recompute financial information on a sample of sales invoices

Correct Answer
verified

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of:

Correct Answer
verified

What is channel stuffing?

Correct Answer
verified

During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

Correct Answer
verified

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's assertion about account balances of:

Correct Answer
verified

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

Correct Answer
verified

Exam 10: Auditing the Revenue Process

Which is not a key segregation of duties for the revenue process? Different parties should:

Correct AnswerverifiedShow Answer

In general, revenue is recognized when:

Correct AnswerverifiedShow Answer

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Correct AnswerverifiedShow Answer

Correct Answerverified1)Tests of details of account ...View AnswerShow Answer

Tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management's assertion of:

Correct AnswerverifiedShow Answer

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

Correct AnswerverifiedShow Answer

Order entry is the initial function in the revenue cycle.

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an:

Correct AnswerverifiedShow Answer

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

Correct AnswerverifiedShow Answer

According to FASB ASC 606, which of the following is not part of the five-step approach for revenue recognition?

Correct AnswerverifiedShow Answer

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely:

Correct AnswerverifiedShow Answer

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an:

Correct AnswerverifiedShow Answer

Explain how revenue recognition is important to the audit of the revenue process.

Correct AnswerverifiedTo determine whether the financial state...View AnswerShow Answer

Match the test of controls described below to the appropriate assertion it is used to test: -Recompute financial information on a sample of sales invoices

Correct AnswerverifiedShow Answer

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of:

Correct AnswerverifiedShow Answer

What is channel stuffing?

Correct AnswerverifiedShow Answer

During a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and has access to cash. Which of the following controls would be most effective in offsetting this weakness?

Correct AnswerverifiedShow Answer

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's assertion about account balances of:

Correct AnswerverifiedShow Answer

In confirming accounts receivable, an auditor decided to confirm customers' account balances rather than individual invoices. Which of the following most likely would be included with the entity's confirmation letter?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
1)Tests of details of account ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
To determine whether the financial state...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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