Exam 10: Auditing the Revenue Process

Match the test of controls described below to the appropriate assertion it is used to test: -Compare the dates on the sales invoices with the dates of the relevant shipping documents

Describe the two types of confirmations and indicate which one is more reliable and why.

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:

At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor?

Assume an account receivable confirmation is returned with a note to the auditor describing a difference between your client's records and the customer's records. Clearly describe below two potential non-misstatement timing differences that could cause a discrepancy between a client's receivable records and his/her customer's records. The timing differences you describe should be such that after investigation you would determine that your client's receivable balance is not misstated due to these differences.

Which of the following procedures would ordinarily be expected to best reveal improper cutoff of sales at the balance sheet date?

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

Assume you are working on a 12/31 year-end audit. It is now March 31ˢᵗ and the 12/31 accounts receivable aging shows a large receivable that was outstanding on 12/31 for 120 days. Further, the entity's receivables are typically collected in less than 45 days. You anticipate that the entity's allowance for doubtful account should be increased and inform the entity about your disposition. Management disagrees. Is there an alternative substantive procedure that you could perform that would provide convincing evidence that this balance is collectible? If so, explain.

Which of the following procedures most likely would not be an internal control activity designed to reduce the risk of errors in the billing process?

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?

Listed below are six of the seven assertions about classes of transactions and events made in the revenue process. For each, give an example of how an auditor could use one of the types of documents contained in the revenue process to test the assertion. Occurrence Completeness Authorization Accuracy Cutoff Classification

A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the:

Upon receipt of customers' checks in the mailroom, a responsible employee should prepare a control listing. A copy of the listing should be sent to the:

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

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:

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

When comparing prices and terms on a sample of sales invoices with the authorized price list and terms of trade, the auditor is testing the ________ assertion.

Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to:

Revenue is realized when a product or service is exchanged for inflows or other enhancement of assets.

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about: