Question 1

Which of the following documents is mainly related to sales?

Accepted Answer

A)  sales invoice 
B)  customer order 
C)  sales order 
D)  all of the above

Question 2

Most companies recognise sales when goods are ordered from a credit-worthy customer.

Accepted Answer

A) True 
 B)False

Question 3

Monthly statements should be mailed by the accounts clerk.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following procedures would ordinarily be expected to BEST reveal unrecorded sales at the balance sheet date?

Accepted Answer

A)  Send accounts receivable confirmation requests. 
B)  Apply gross profit rates to inventory disposed of during the period. 
C)  Trace shipping documents to the sales journal. 
D)  Trace payments received subsequent to the balance sheet date.

Question 5

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

Accepted Answer

A) True 
 B)False

Question 6

Describe each of the six key control activities for sales.

Accepted Answer

The answer of Describe each of the six key control...

Question 7

Which of the following is the appropriate test of controls for separation of duties?

Accepted Answer

A)  confirmation 
B)  documentation 
C)  observation 
D)  examination

Question 8

It is common to test sales for proper classification as part of testing for:

Accepted Answer

A)  valuation. 
B)  completeness. 
C)  accuracy. 
D)  cutoff.

Question 9

Which of the following is a document prepared to initiate shipment of the goods sold?

Accepted Answer

A)  sales invoice 
B)  customer order 
C)  bill of lading 
D)  sales order

Question 10

A common test is to account for a sequence of various types of documents, such as duplicate sales invoices selected from the sales journal, watching for omitted and duplicate numbers or invoices outside the normal sequence.This test provides evidence of:

Accepted Answer

A)  completeness. 
B)  existence. 
C)  both of the above 
D)  none of the above

Question 11

Explain what 'lapping' means and discuss the internal control deficiency that allows it to occur.Also discuss the procedures the auditor can perform to detect lapping.

Accepted Answer

The answer of Explain what 'lapping' means and discuss the...

Question 12

If the controls necessary to satisfy any one of the objectives are inadequate, the likelihood of errors related to that objective:

Accepted Answer

A)  may be decreased if management is aware of the poor controls. 
B)  is indeterminate. 
C)  may be increased if the controls for other objectives don't mitigate it. 
D)  is increased, regardless of the controls for the other objectives.

Question 13

Which of the following is NOT an example of an internal verification procedure?

Accepted Answer

A)  accounting for numerical sequence of prenumbered documents 
B)  checking accuracy of document preparation 
C)  reviewing reports for incorrect items 
D)  checking for authorisation of transactions

Question 14

The prelisting of cash receipts should be prepared by the individual who has no access to cash or to accounting records.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following business functions is mainly related to the allowance for doubtful debts?

Accepted Answer

A)  writing off uncollectible accounts receivable 
B)  granting credit 
C)  billing customers 
D)  all of the above

Question 16

The most important concern in the processing and recording cash receipts function is the possibility of theft.

Accepted Answer

A) True 
 B)False

Question 17

Discuss the types of misstatements the auditor is concerned with when testing the existence objective for sales.

Accepted Answer

The answer of Discuss the types of misstatements the auditor...

Question 18

State the six specific transaction-related audit objectives for sales.For each objective, identify one key internal control.Then, for each internal control, describe one common test of controls.

Accepted Answer

The answer of State the six specific transaction-related audit objectives...

Question 19

Cash at bank, in the sales and collection cycle, will ultimately be affected by:

Accepted Answer

A)  bad debts. 
B)  sales returns and allowances. 
C)  cash discounts. 
D)  all of the above

Question 20

Explain what a sales return and allowance means.

Accepted Answer

The answer of Explain what a sales return and allowance...

Exam 12: Audit of the sales and collection cycle: Tests of controls and substantive tests of transactions

Which of the following documents is mainly related to sales?

Most companies recognise sales when goods are ordered from a credit-worthy customer.

Monthly statements should be mailed by the accounts clerk.

Which one of the following procedures would ordinarily be expected to BEST reveal unrecorded sales at the balance sheet date?

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

Describe each of the six key control activities for sales.

Which of the following is the appropriate test of controls for separation of duties?

It is common to test sales for proper classification as part of testing for:

Which of the following is a document prepared to initiate shipment of the goods sold?

A common test is to account for a sequence of various types of documents, such as duplicate sales invoices selected from the sales journal, watching for omitted and duplicate numbers or invoices outside the normal sequence.This test provides evidence of:

Explain what 'lapping' means and discuss the internal control deficiency that allows it to occur.Also discuss the procedures the auditor can perform to detect lapping.

If the controls necessary to satisfy any one of the objectives are inadequate, the likelihood of errors related to that objective:

Which of the following is NOT an example of an internal verification procedure?

The prelisting of cash receipts should be prepared by the individual who has no access to cash or to accounting records.

Which of the following business functions is mainly related to the allowance for doubtful debts?

The most important concern in the processing and recording cash receipts function is the possibility of theft.

Discuss the types of misstatements the auditor is concerned with when testing the existence objective for sales.

State the six specific transaction-related audit objectives for sales.For each objective, identify one key internal control.Then, for each internal control, describe one common test of controls.

Cash at bank, in the sales and collection cycle, will ultimately be affected by:

Explain what a sales return and allowance means.