Question 1

Which of the following controls is most likely to help ensure that all credit sales transactions are recorded?

Accepted Answer

A) The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. 
B) The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. 
C) The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers. 
D) The billing department supervisor matches pre-numbered shipping documents with entries in the sales journal.

Question 2

The revenue and collection process encompasses all activities from receiving and processing the initial sales order through to collecting and depositing cash received from the customer.

Accepted Answer

A) True 
 B)False

Question 3

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 4

Selecting a sample of debits from customer accounts receivable records and vouching them to supporting sales invoices is an audit procedure designed to obtain evidence about the control objective of ________.

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when ________.

Accepted Answer

A) there is no response to a positive confirmation request 
B) there is no response to a negative confirmation request 
C) collectability of the receivables is in doubt 
D) pledging of the receivables is probable

Question 7

Is the confirmation of cash and accounts receivable required according to Canadian Auditing Standards? Explain.

Accepted Answer

The answer of Is the confirmation of cash and accounts...

Question 8

Canadian Auditing Standards require auditors to always presume fraud risk to be present in the audit of revenues.

Accepted Answer

A) True 
 B)False

Question 9

An unrecorded cheque issued during the last week of the year would most likely be discovered by the auditor when the ________.

Accepted Answer

A) cheque register for the last month is reviewed 
B) cutoff bank statement is reconciled 
C) bank confirmation is reviewed 
D) search for unrecorded liabilities is performed

Question 10

In choosing to use blank positive confirmations,the auditor should consider what possible trade-off will occur?

Accepted Answer

A) A higher response rate but lower detection rate. 
B) A lower cost but higher benefit 
C) A higher detection rate but lower response rate 
D) Higher cost but lower benefit

Question 11

To gather evidence about transactions with related parties,an auditor would most likely ________.

Accepted Answer

A) send account confirmations 
B) perform analysis of receivables turnover 
C) scan the receivables sub-ledger for credit balances 
D) scan the aged trial balance for names of officers and directors

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

Question 13

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

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Cash receipts procedures should include steps for authorizing and recording discounts when the customer takes them.

Accepted Answer

A) True 
 B)False

Question 17

In the audit of accounts receivable,negative confirmations are not normally used if ________.

Accepted Answer

A) internal control is considered effective 
B) there are a large number of small balances 
C) customers can be expected to consider the confirmation properly 
D) account balances are in dispute

Question 18

Tracing the processing of a transaction from initiation to its recording in the records is called:

Accepted Answer

A) A control risk assessment 
B) A walk-through 
C) An internal control test 
D) A substantive test of transactions

Question 19

When the credit manager decides a customers' 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 20

In the course of examining the cutoff bank statement for a client,an auditor is puzzled to discover that none of the cheques listed as outstanding on the year-end bank reconciliation has cleared the bank.This could be an indication that the client ________.

Accepted Answer

A) is engaged in kiting 
B) has overstated the year-end balance of cash 
C) mailed the cheques to vendors after the year-end 
D) left the cash receipts journal open after the year-end.

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

Which of the following controls is most likely to help ensure that all credit sales transactions are recorded?

The revenue and collection process encompasses all activities from receiving and processing the initial sales order through to collecting and depositing cash received from the customer.

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 ________.

Selecting a sample of debits from customer accounts receivable records and vouching them to supporting sales invoices is an audit procedure designed to obtain evidence about the control objective of ________.

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

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when ________.

Is the confirmation of cash and accounts receivable required according to Canadian Auditing Standards? Explain.

Canadian Auditing Standards require auditors to always presume fraud risk to be present in the audit of revenues.

An unrecorded cheque issued during the last week of the year would most likely be discovered by the auditor when the ________.

In choosing to use blank positive confirmations,the auditor should consider what possible trade-off will occur?

To gather evidence about transactions with related parties,an auditor would most likely ________.

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

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

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

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

Cash receipts procedures should include steps for authorizing and recording discounts when the customer takes them.

In the audit of accounts receivable,negative confirmations are not normally used if ________.

Tracing the processing of a transaction from initiation to its recording in the records is called:

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

In the course of examining the cutoff bank statement for a client,an auditor is puzzled to discover that none of the cheques listed as outstanding on the year-end bank reconciliation has cleared the bank.This could be an indication that the client ________.