Question 1

Infotech is a small software company with few billings. It sends out invoices to clients using the preparation date as the invoice number. As a result, which of the following assertions about billings cannot be tested?

Accepted Answer

A)  Validity. 
B)  Completeness. 
C)  Classification. 
D)  Proper period accounting.

Question 2

Auditors ordinarily send a standard bank confirmation to all banks with which the client has done business during the year under audit, regardless of whether the client has closed its account. One reason for doing so is to ________.

Accepted Answer

A)  provide the data necessary to prepare a summary of cash 
B)  request that a cutoff bank statement and cancelled cheques be sent to the auditor 
C)  detect lapping activities that might otherwise not be discovered 
D)  obtain information about unrecorded liabilities and security agreements

Question 3

Substantive procedures for the audit of cash would include which of the following?

Accepted Answer

A)  Ask that a cutoff bank statement be mailed directly to the client. 
B)  Enquire if the client has prepared bank reconciliations for all bank accounts on a monthly basis. 
C)  Prepare a schedule of inter-bank transfers for a period of ten business days before and after year-end date. 
D)  Obtain written descriptions from the client about its cash receipts procedures.

Question 4

The control objective associated with selecting a sample of recorded sales invoices from the sales journal and recalculating the cross totals of quantities and prices is ________.

Accepted Answer

A)  authorization 
B)  completeness 
C)  validity 
D)  accuracy

Question 5

What is two-direction testing?

Accepted Answer

The answer of What is two-direction testing?...

Question 6

What are the general internal control objectives for the revenue cycle?

Accepted Answer

The answer of What are the general internal control objectives...

Question 7

To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?

Accepted Answer

A)  Ascertain that management's letter of representation includes the statement that transactions have been accounted for in the proper accounting period. 
B)  Analyze transactions occurring within a few days before and after year-end. 
C)  Confirm year-end transactions with regular customers. 
D)  Examine cash receipts in the subsequent period.

Question 8

In testing controls related to a client's processing of credit sales transactions, auditors need to define "deviations" in advance. Give six examples of deviations from control objectives.

Accepted Answer

The answer of In testing controls related to a client's...

Question 9

Which of the following procedures would best lead to an understanding of the transaction flow in the revenue and collection cycle?

Accepted Answer

A)  Inquiry. 
B)  Observation. 
C)  Confirmations. 
D)  Inspecting a sample of documents.

Question 10

The primary consideration when planning to confirm accounts receivable before the balance sheet date is the ________.

Accepted Answer

A)  type of confirmation to be used 
B)  client's internal control over transactions affecting receivables 
C)  availability of staff auditors 
D)  number of customer accounts

Question 11

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates exceptions and comments noted by respondents. By this procedure, the auditor is most likely to learn of which of the following?

Accepted Answer

A)  One of the cashiers has been covering a personal embezzlement by lapping. 
B)  One of the sales clerks has not been preparing charge slips for credit sales to family and friends. 
C)  One of the EDP control clerks has been removing all sales invoices applicable to his account from the data file. 
D)  The credit manager has misappropriated remittances from customers whose accounts have been written off.

Question 12

Typical source documents involved in the revenue and collection cycle would be ________.

Accepted Answer

A)  cash disbursements 
B)  shipping documents 
C)  inventory listings 
D)  vendor invoices

Question 13

Selecting a sample of recorded sales invoices from the sales journal and comparing the quantity billed to the quantity shipped is an example of a test to satisfy the control objective of accuracy.

Accepted Answer

A) True 
 B)False

Question 14

The control objective associated with selecting a sample of cash receipts remittance lists (or daily cash reports) and tracing them through to the cash receipts journal is ________.

Accepted Answer

A)  validity 
B)  completeness 
C)  existence 
D)  authorization

Question 15

A lock box system is an effective way to segregate the custody of cash.

Accepted Answer

A) True 
 B)False

Question 16

Evidence of ownership can be obtained by studying the title documents for assets.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is most likely to be detected by an auditor's review of a client's sales cut off?

Accepted Answer

A)  Shipments lacking sales invoices and shipping documents. 
B)  Excessive write-off of accounts receivable. 
C)  Unrecorded sales at year-end. 
D)  Lapping of year-end accounts receivable.

Question 18

Tracing bills of lading to sales invoices provides evidence that ________.

Accepted Answer

A)  shipments to customers were invoiced 
B)  shipments to customers were recorded as sales 
C)  recorded sales were shipped 
D)  invoiced sales were shipped

Question 19

The most frequent reconciliation is the comparison of the sum of customers' unpaid balances with the accounts receivable control account total. Usually, this reconciliation is done with a(n) ________.

Accepted Answer

A)  aged trial balance 
B)  capital asset sub-ledger 
C)  bank statement 
D)  customer statement

Question 20

An auditor is most likely to review an entity's practice of periodically accounting for the numerical sequence of shipping documents and invoices as evidence and support for management's financial statement assertion of ________.

Accepted Answer

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

Exam 11: The Revenues, Receivables, and Receipts Process and Cash Account Balance

Infotech is a small software company with few billings. It sends out invoices to clients using the preparation date as the invoice number. As a result, which of the following assertions about billings cannot be tested?

Auditors ordinarily send a standard bank confirmation to all banks with which the client has done business during the year under audit, regardless of whether the client has closed its account. One reason for doing so is to ________.

Substantive procedures for the audit of cash would include which of the following?

The control objective associated with selecting a sample of recorded sales invoices from the sales journal and recalculating the cross totals of quantities and prices is ________.

What is two-direction testing?

What are the general internal control objectives for the revenue cycle?

To determine whether sales transactions have been recorded in the proper accounting period, the auditor performs cutoff tests. Which of the following best describes the overall approach used when performing cutoff tests?

In testing controls related to a client's processing of credit sales transactions, auditors need to define "deviations" in advance. Give six examples of deviations from control objectives.

Which of the following procedures would best lead to an understanding of the transaction flow in the revenue and collection cycle?

The primary consideration when planning to confirm accounts receivable before the balance sheet date is the ________.

An auditor confirms a representative number of open accounts receivable as of December 31 and investigates exceptions and comments noted by respondents. By this procedure, the auditor is most likely to learn of which of the following?

Typical source documents involved in the revenue and collection cycle would be ________.

Selecting a sample of recorded sales invoices from the sales journal and comparing the quantity billed to the quantity shipped is an example of a test to satisfy the control objective of accuracy.

The control objective associated with selecting a sample of cash receipts remittance lists (or daily cash reports) and tracing them through to the cash receipts journal is ________.

A lock box system is an effective way to segregate the custody of cash.

Evidence of ownership can be obtained by studying the title documents for assets.

Which of the following is most likely to be detected by an auditor's review of a client's sales cut off?

Tracing bills of lading to sales invoices provides evidence that ________.

The most frequent reconciliation is the comparison of the sum of customers' unpaid balances with the accounts receivable control account total. Usually, this reconciliation is done with a(n) ________.

An auditor is most likely to review an entity's practice of periodically accounting for the numerical sequence of shipping documents and invoices as evidence and support for management's financial statement assertion of ________.