Question 1

Revenue must be realized (or realizable)and earned to be recognized.

Accepted Answer

A) True 
 B)False

Question 2

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

Accepted Answer

A)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
B)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
C)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
D)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
A)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
B)  A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances. 
C)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers. 
D)  A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.

Question 3

Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because

Accepted Answer

A)  entities are more likely to overstate than understate revenues. 
B)  entities are more likely to understate than overstate revenues. 
C)  it is difficult to determine when services have been performed. 
D)  the allowance for doubtful accounts often is understated. 
A)  entities are more likely to overstate than understate revenues. 
B)  entities are more likely to understate than overstate revenues. 
C)  it is difficult to determine when services have been performed. 
D)  the allowance for doubtful accounts often is understated.

Question 4

Which of the following sets of duties would ordinarily be considered basically incompatible in terms of effective internal control?

Accepted Answer

A)  Preparation of monthly statements to customers and maintenance of the accounts receivable subsidiary ledger. 
B)  Posting to the general ledger and approval of additions and terminations relating to the payroll. 
C)  Custody of unmailed signed checks and maintenance of expense subsidiary ledgers. 
D)  Collection of receipts on account and maintaining accounts receivable records. 
A)  Preparation of monthly statements to customers and maintenance of the accounts receivable subsidiary ledger. 
B)  Posting to the general ledger and approval of additions and terminations relating to the payroll. 
C)  Custody of unmailed signed checks and maintenance of expense subsidiary ledgers. 
D)  Collection of receipts on account and maintaining accounts receivable records.

Question 5

The return of vendor purchases is a part of the revenue process.

Accepted Answer

A) True 
 B)False

Question 6

Some firms that dispose of only a small part of their total output by consignment shipments fail to make any distinction between consignment shipments and regular sales.Which of the following would suggest that goods have been shipped on consignment?

Accepted Answer

A)  Numerous shipments of small quantities. 
B)  Numerous shipments of large quantities and few returns. 
C)  Large debits to accounts receivable followed by small periodic credits. 
D)  Large debits to accounts receivable followed by large periodic credits. 
A)  Numerous shipments of small quantities. 
B)  Numerous shipments of large quantities and few returns. 
C)  Large debits to accounts receivable followed by small periodic credits. 
D)  Large debits to accounts receivable followed by large periodic credits.

Question 7

Identify whether the following tests are tests of controls,substantive analytical procedures,tests of details of transactions,or tests of details of account balances.

Accepted Answer

1)Select a sample of customer receivable

Question 8

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

Accepted Answer

A)  evaluate internal control over credit sales. 
B)  test the accuracy of recorded credit sales. 
C)  evaluate the allowance for doubtful accounts. 
D)  verify the existence of the recorded receivables. 
A)  evaluate internal control over credit sales. 
B)  test the accuracy of recorded credit sales. 
C)  evaluate the allowance for doubtful accounts. 
D)  verify the existence of the recorded receivables.

Question 9

The revenue process affects numerous accounts in the financial statements.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A)  Comparing control totals for shipping documents with corresponding totals for sales invoices. 
B)  Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. 
C)  Matching shipping documents with approved sales orders before invoice preparation. 
D)  Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger. 
A)  Comparing control totals for shipping documents with corresponding totals for sales invoices. 
B)  Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. 
C)  Matching shipping documents with approved sales orders before invoice preparation. 
D)  Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

Question 11

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. 
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 12

When evaluating internal control of an entity that processes revenue transactions on the Internet,an auditor would be most concerned about the

Accepted Answer

A)  potential for computer disruptions in recording sales. 
B)  lack of sales invoice documents as an audit trail. 
C)  frequency of archiving and data retention. 
D)  inability to establish test data. 
A)  potential for computer disruptions in recording sales. 
B)  lack of sales invoice documents as an audit trail. 
C)  frequency of archiving and data retention. 
D)  inability to establish test data.

Question 13

All of the following are important controls over credit memos except:

Accepted Answer

A)  proper segregation of duties to ensure that sales discounts taken were earned. 
B)  credit memos should be approved by someone other than whoever initiated it. 
C)  credit memos should be supported by a receiving document for returned goods. 
D)  proper segregation of duties between access to customer records and authorizing credit memos. 
A)  proper segregation of duties to ensure that sales discounts taken were earned. 
B)  credit memos should be approved by someone other than whoever initiated it. 
C)  credit memos should be supported by a receiving document for returned goods. 
D)  proper segregation of duties between access to customer records and authorizing credit memos.

Question 14

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them.Which of the following is the most appropriate audit procedure?

Accepted Answer

A)  Examine shipping documents. 
B)  Review collections during the year being examined. 
C)  Intensify the study of the entity's system of internal control with respect to receivables. 
D)  Increase the balance in the allowance for uncollectible accounts. 
A)  Examine shipping documents. 
B)  Review collections during the year being examined. 
C)  Intensify the study of the entity's system of internal control with respect to receivables. 
D)  Increase the balance in the allowance for uncollectible accounts.

Question 15

In auditing accounts receivable,the negative form of confirmation request most likely would be used when

Accepted Answer

A)  recipients are likely to return positive confirmation requests without verifying the accuracy of the information. 
B)  the combined assessed level of inherent and control risk relative to accounts receivable is low. 
C)  a small number of accounts receivable are involved but a relatively large number of errors are expected. 
D)  the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence. 
A)  recipients are likely to return positive confirmation requests without verifying the accuracy of the information. 
B)  the combined assessed level of inherent and control risk relative to accounts receivable is low. 
C)  a small number of accounts receivable are involved but a relatively large number of errors are expected. 
D)  the auditor performs a dual purpose test that assesses control risk and obtains substantive evidence.

Question 16

A negative confirmation requests that customers respond whether they agree or not with the amount due to the entity stated in the confirmation.

Accepted Answer

A) True 
 B)False

Question 17

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

Accepted Answer

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

Question 18

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Accepted Answer

A)  Including a monthly statement of the customer's account with the confirmation. 
B)  Restricting the selection of accounts to be confirmed to those customers with relatively large balances. 
C)  Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail. 
D)  Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner. 
A)  Including a monthly statement of the customer's account with the confirmation. 
B)  Restricting the selection of accounts to be confirmed to those customers with relatively large balances. 
C)  Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail. 
D)  Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner.

Question 19

Which of the following is the best argument against the use of negative accounts receivable confirmations?

Accepted Answer

A)  The cost-per-response is excessively high. 
B)  There is no way of knowing if the intended recipients received them. 
C)  Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. 
D)  The inference drawn from receiving no reply may not be correct. 
A)  The cost-per-response is excessively high. 
B)  There is no way of knowing if the intended recipients received them. 
C)  Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. 
D)  The inference drawn from receiving no reply may not be correct.

Question 20

When a sample of sales transactions recorded in the sales journal is traced back to the customer orders and shipping documents,the auditor is testing the ____________ assertion.

Accepted Answer

A)  cutoff 
B)  authorization 
C)  completeness 
D)  occurrence 
A)  cutoff 
B)  authorization 
C)  completeness 
D)  occurrence

Exam 10: Auditing the Revenue Process

Revenue must be realized (or realizable)and earned to be recognized.

In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?

Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because

Which of the following sets of duties would ordinarily be considered basically incompatible in terms of effective internal control?

The return of vendor purchases is a part of the revenue process.

Some firms that dispose of only a small part of their total output by consignment shipments fail to make any distinction between consignment shipments and regular sales.Which of the following would suggest that goods have been shipped on consignment?

Identify whether the following tests are tests of controls,substantive analytical procedures,tests of details of transactions,or tests of details of account balances.

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

The revenue process affects numerous accounts in the financial statements.

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?

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

When evaluating internal control of an entity that processes revenue transactions on the Internet,an auditor would be most concerned about the

All of the following are important controls over credit memos except:

Customers having substantial year-end past due balances fail to reply after second request confirmation forms have been mailed directly to them.Which of the following is the most appropriate audit procedure?

In auditing accounts receivable,the negative form of confirmation request most likely would be used when

A negative confirmation requests that customers respond whether they agree or not with the amount due to the entity stated in the confirmation.

An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Which of the following is the best argument against the use of negative accounts receivable confirmations?

When a sample of sales transactions recorded in the sales journal is traced back to the customer orders and shipping documents,the auditor is testing the ____________ assertion.

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professsional Conduct,Independence,and Quality Control

Legal Liability

Assurance,Attestation,amd Internal Auditing Services-professional Judgement Module

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