Question 1

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. D

Question 2

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

Accepted Answer

A)   Valuation and allocation.
B)   Completeness.
C)   Existence.
D)   Rights and obligations. A

Question 3

An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the existence or occurrence assertion 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 4

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 5

Match between columns
                        Premises:  Accuracy
 Classification
 Completeness
 Occurrence
 Cutoff
 Authorization

Accepted Answer

The Answer of Observe the endorsement of checks and Review is...

Question 6

Which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process?

Accepted Answer

A)   Final authorization of credit memos by personnel in the Sales Department could permit an employee defalcation scheme.
B)   Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables.
C)   Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped.
D)   Omission of shipping documents could go undetected, causing an understatement of inventory.

Question 7

In general,revenue is recognized when

Accepted Answer

A)   Goods are shipped.
B)   It is earned and realized.
C)   It is recorded in the sales journal.
D)   It is received in cash.

Question 8

What inherent risk factors should an auditor consider when auditing the revenue process of a computer manufacturer?

Accepted Answer

The answer of What inherent risk factors should an auditor...

Question 9

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.

Question 10

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 11

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

Accepted Answer

A)   Clients are more likely to overstate than understate revenues.
B)   Clients 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 12

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.

Question 13

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom?

Accepted Answer

A)   The cashier prepares the daily deposit.
B)   The cashier makes the daily deposit at a local bank.
C)   The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
D)   The cashier endorses the checks.

Question 14

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 client'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 15

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.

Question 16

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.

Question 17

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 18

Audit documents often include a client-prepared 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.

Question 19

Customers having substantial year-end past due balances fail to reply after second request 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 client's system of internal control with respect to receivables.
D)   Increase the balance in the allowance for uncollectible accounts.

Question 20

Match the test of controls described below to the appropriate assertion it is used to test:

Accepted Answer

The answer of Match the test of controls described below...

Exam 10: Auditing the Revenue Process