Question 1

In a manual data processing system,the custody of cash and the recording of cash receipts in the cash journal should be combined for maximum control.

Accepted Answer

A) True 
 B)False  False

Question 2

In the audit of cash,the auditor obtains a bank cutoff statement primarily to ________.

Accepted Answer

A)  identify old outstanding cheques that the client may exclude from the year-end bank reconciliation in order to misappropriate cash
B)  obtain sufficient information to reconcile the client's bank account as at the year-end
C)  obtain direct confirmation of the client's bank balances as at the year-end
D)  test the propriety of items appearing on the client's year-end bank reconciliation D

Question 3

Will the confirmation of accounts,loans,and notes receivable always provide sufficient appropriate audit evidence to cover the ownership assertion made by the client?

Accepted Answer

No.The respondents to the confirmations will not be able to determine if the client has sold or factored their accounts to a third party.Auditors need to perform additional procedures to get evidence of ownership of the receivable and of the disclosures required with respect to financing arrangement secured by the receivables.

Question 4

In determining the adequacy of the allowance for uncollectible accounts,the least valuable evidence would be obtained from ________.

Accepted Answer

A)  an aging schedule of past due accounts that the auditor has tested
B)  correspondence with the client's collection agency
C)  financial statements of individual customers
D)  lack of a reply to negative confirmations

Question 5

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 6

In-Line Company records accounts receivable from customers arising from both the sale of in-line skates and the provision of repair service.The CA firm of King & King is auditing the financial statements of In-Line Company.Lyon,the audit manager,is aware that the confirmation of customer accounts receivable is a substantive procedure normally used in the audit of accounts receivable.Selected balances from In-Line's financial statements are as follows: accounts receivable,$7,000;current assets,$322,000;total assets,$630,000;shareholders' equity,$570,000;net income,$190,000.
Required:
A)How can Lyon justify deciding not to confirm In-Line's accounts receivable?
B)Briefly describe two types of positive confirmation Lyon could send to In-Line's customers.
C)What alternative procedures can Lyon perform if In-Line's customers fail to respond to the confirmation requests?

Accepted Answer

The answer of In-Line Company records accounts receivable from customers...

Question 7

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 8

When the credit manager decides a customer's account is considered to be uncollectible,the decision should be reviewed by the controller to ________.

Accepted Answer

A)  ensure the bad debts account is within budget
B)  ensure the credit manager has not written off the account as a favour to a friend
C)  begin a lawsuit to collect the money
D)  inform the police

Question 9

What is dual-direction testing?

Accepted Answer

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

Question 10

Which of the following audit procedures is the most effective when testing sales for understatement?

Accepted Answer

A)  Scrutinize the accounts receivable aged trial balance.
B)  Confirm a sample of recorded accounts receivable.
C)  Trace a sample of shipping documents to sales invoices recorded in the sales journal.
D)  Vouch a sample of recorded sales from the sales journal to shipping documents.

Question 11

In a manual system for the recording of cash receipts,the same person should make the journal entries to the control account and the subsidiary records.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

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

Question 13

Upon receipt of customer cheques in the mailroom,a responsible employee should prepare a remittance listing and forward it to the cashier.A copy of the listing should be sent to the ________.

Accepted Answer

A)  internal auditor to investigate the listing for unusual transactions
B)  controller to compare the listing with the monthly bank statement
C)  accounts receivable bookkeeper to update the subsidiary accounts receivable records
D)  entity's bank to compare the listing with the cashier's deposit slip

Question 14

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

Accepted Answer

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

Question 15

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 16

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 17

The use of positive confirmations provides better evidence than the use of negative confirmations.

Accepted Answer

A) True 
 B)False

Question 18

The revenue and collection process includes activities from preparing the initial sales order through recording the transaction in the sales journal.

Accepted Answer

A) True 
 B)False

Question 19

The bank confirmation provides the most evidence for which of the following assertions about cash?

Accepted Answer

A)  Existence.
B)  Presentation.
C)  Valuation.
D)  Completeness.

Question 20

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

Accepted Answer

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

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

In a manual data processing system,the custody of cash and the recording of cash receipts in the cash journal should be combined for maximum control.

In the audit of cash,the auditor obtains a bank cutoff statement primarily to ________.

Will the confirmation of accounts,loans,and notes receivable always provide sufficient appropriate audit evidence to cover the ownership assertion made by the client?

In determining the adequacy of the allowance for uncollectible accounts,the least valuable evidence would be obtained from ________.

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?

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 ________.

When the credit manager decides a customer's account is considered to be uncollectible,the decision should be reviewed by the controller to ________.

What is dual-direction testing?

Which of the following audit procedures is the most effective when testing sales for understatement?

In a manual system for the recording of cash receipts,the same person should make the journal entries to the control account and the subsidiary records.

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

Upon receipt of customer cheques in the mailroom,a responsible employee should prepare a remittance listing and forward it to the cashier.A copy of the listing should be sent to the ________.

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

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

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 ________.

The use of positive confirmations provides better evidence than the use of negative confirmations.

The revenue and collection process includes activities from preparing the initial sales order through recording the transaction in the sales journal.

The bank confirmation provides the most evidence for which of the following assertions about cash?

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