Audit (403) exam 3

a

If a customer pays its receivable in full but a client fails to record cash received from the customer, which of the following account balance assertions related to accounts receivable is misstated? a) Existence. b) Completeness. c) Rights and obligations. d) Valuation at net realizable value.

bank cutoff statement

a bank statement for the period subsequent to the date of the balance sheet client must request from the bank and instruct that it should be sent directly to the auditor

bank reconciliation

the most important control over the existence, completeness, and valuation of cash balances is an independent _____ ________

payable

key assertions for purchases and accounts ______ 1. completeness of purchases 2. occurrence of purchases 3. accuracy of purchases 4. purchases cutoff 5. classification of expenses and payables 6. completeness of payables, valuation of payables at historic cost, and existence of accounts payable

a

A small manufacturing company makes only credit sales. If cash receipts from sales are misappropriated, which of the following acts would most likely conceal this fraud? a) Understating the cash receipts journal. b) Understating the accounts receivable control account. c) Understating the accounts receivable subsidiary ledger. d) Overstating the sales journal.

d

An auditor wants to determine that all sales adjustments are recorded. This relates to which of the following transaction-class assertions? a) Occurrence. b) Classification. c) Accuracy. d) Completeness.

d

For which of the following companies would the auditor have the least concern about the existence of inventory? a) A computer manufacturer. b) An oil and gas field equipment manufacturer. c) A retail grocer. d) A hotel.

c

The internal document commonly used to record a credit purchase in the purchases journal is a: a) purchase requisition. b) purchase order. c) voucher. d) vendor's invoice.

d

Understanding how the entity earns and recognizes revenue assists the auditor in ________. a) discussing the audit with the predecessor auditor b) developing an expectation of total revenues by understanding the capacities of the client's key competitors c) determining control risk related to accounts payable d) developing an expectation of total revenues by understanding the client's capacity, market place, and customers

b

Which of the following industries would have the greatest concerns about purchases cutoff at month end, unrecorded liabilities, and accounting for advertising allowances provided by vendors? a) Manufacturer of construction equipment. b) Retail grocer. c) Local school district. d) Hotel.

c

Which of the following internal control procedures would most likely assure that all billed sales are correctly posted to the accounts receivable ledger? a) Each shipment on credit is supported by a prenumbered sales invoice. b) The accounts receivable ledger is reconciled daily to the control account in the general ledger. c) Daily sales summaries are compared to daily postings to the accounts receivable ledger. d) Each sales invoice is supported by a prenumbered shipping document.

b

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? a) Review authenticated deposit slips. b) Prepare a schedule of bank transfers from the client's books. c) Review subsequent bank statements and canceled checks received directly from the bank. d) Prepare year-end bank reconciliation.

classes of transactions

_____ __ ________ in the revenue process 1. credit sales 2. cash receipts 3. sales adjustments

accepting

_____ customer orders >> sales orders from customers should be accepted only in accordance with management's authorized criteria

over the counter

______ ______ _______ receipts >> a cash register or point of sale terminal is indispensable ... these devices provide: 1. immediate visual display for the customer as to the amount of the cash sale & the cash tendered 2. a printed receipt for the customer and an internal record of the transaction on a computer file or a tape locked inside the register 3. printed control totals of the day's receipts processed on the device

customer master file

______ _______ ___ >> usually part of the sales process database, with information on approved customers, customer shipping and billing information, & the customer credit limit access to the ___ ____ ____ and changes to this file should be tightly controlled by the entity

kiting

a method often used to conceal a cash shortage or to overstate cash in the bank

sales adjustments

adjustments for goods returned by the customer, discounts given to customers associated with defects in goods received by the customer, and period-end adjustments to record a provision for bad debt expense or to record the write off of accounts receivable

net operating cycle

an entity's ____ _____ ______ represents the time from using cash to purchase goods or services to collecting cash from the sale of goods or service represents the gross operating cycle reduced by accounts payable turnover days

loss contingency

an existing condition or situation involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur

bill of lading

client's shipping document that serves as acknowledgement of receipt of goods for delivery by a freight carrier

sales invoice

client-prepared document stating the particulars of a sale, including the amount owed, terms, and date of sale it is used to bill customers, and it provides the basis for recording a sale in the sales journal

packing slip

client-prepared document with the details of items included in a shipment

slaes order

client-prepared pre-numbered document that includes customer information, description and quantity of what was ordered, and terms of sale

existence

confirmations are the primary source of evidence in testing the _______ assertion for accounts receivable

incent

factors that _____ management to misstate revenue process assertions & commit fraudulent financial reporting 1. pressures to overstate revenues in order to achieve revenue or profitability targets that were not achieved in reality 2. pressures to overstate cash and gross receivables or understate the allowance for doubtful accounts

Going Concern

financial statements are prepared with the expectation that a business will remain in operation indefinitely

debit memo

form stating the particulars of a debit to accounts payable, including the specific items returned, prices, and amount debited

material

inventory is _______ to some industries (ex. retailers, manufactures)

immaterial

inventory is _______ to some industries (ex. service industries > hotels, colleges)

walk through

involves following a transaction from its initiation until it is recorded in the financial records important because different companies often have different documents and transaction flows

receivable balances

monthly statements of ________ _________ >> a client-prepared report sent to each customer showing the beginning receivable balance, transactions during the month, and the ending receivable balance (even if it is zero)

fraud

procurement _____ risks include: - phantom vendors - fictitious invoices - kickbacks and bid rigging - personal purchases with entity funds - duplicate payments - product substitution

acquiring

purchasing is concerned with _______ (procuring) all of the goods and services that are vital to an organization

shipping report

report prepared on the shipment of goods to vendors showing the kinds and quantities of goods shipped

consignment sales

sales arrangements that have the characteristics of a consignment sale include giving the buyer a lengthy right of return period, requiring sellers to repurchase inventory at a specified price and/or allowing the buyer not to assume risks of ownership due to future pricing concessions

effective

tests of controls are performed when the auditor expects that internal controls are _____

cash

the _____ receipts function involves: 1. receiving cash 2. depositing cash 3. recording the receipt

contract

the first step in initiating an ERS transaction is the _____

completeness

vouching is NOT APPLICABLE to the _______ assertion because vouching starts with a recorded transaction

budgets

well-managed companies regularly develop cash ______, projecting ... 1. cash receipts from operations 2. cash disbursements for operating needs 3. cash flows from investing and financing activities

shipping point

when goods are shipped FOB _______, the title passes on the date of the shipment

destination

when the terms of sale are FOB _____, the title does not pass until the buyer receives the goods

c

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is low, an auditor would probably: a) request the client to schedule the physical inventory count at the end of the year. b) increase the extent of tests of controls over inventory. c) observe the client's inventory count at an interim date. d) insist that the client perform physical counts of inventory items several times during the year.

c

An auditor's program to examine long-term debt most likely would include steps that require: a) comparing the carrying amount of the debt to its year-end market value. b) inspecting the accounts payable subsidiary ledger for unrecorded long-term debt. c) correlating interest expense recorded for the period with outstanding debt. d) verifying the existence of the holders of the debt by direct confirmation.

c

Sound control activities dictate that defective merchandise returned by customers should be presented initially to: a) the credit manager. b) the sales manager. c) the receiving department. d) the accounts receivable supervisor.

b

The primary objective of a CPA's observation of a client's physical inventory count is to: a) provide an appraisal of the quality of the merchandise on hand on the day of the physical count. b) obtain direct knowledge that the inventory exists and has been properly counted. c) allow the auditor to supervise the conduct of the count to obtain assurance that inventory quantities are reasonably accurate. d) discover whether a client has counted a particular inventory item or group of items.

a

Which of the following audit assertions is least likely to be accomplished by vouching payroll transactions to supporting documentation (e.g., time cards and employee contracts)? a) The completeness of payroll transactions. b) Proper cutoff related to payroll transactions. c) The accuracy of payroll transactions. d) The occurrence of payroll transactions.

c

Which of the following cash transfers results in a misstatement of cash at December 31, 2022? Cash Disbursement per Books Cash Paid by the Bank Cash Receipt per Books Cash Received by the Bank a) 12/31/22 1/4/23 12/31/22 12/31/22 b) 12/31/22 1/5/23 12/31/22 1/4/23 c) 1/4/23 1/4/23 12/31/22 12/31/22

b

Which of the following control activities would most likely assure that no fictitious billings have been posted to the sales journal? a) The software application compares prices on the sales invoices with prices on the master price list and notes any discrepancies. b) The software application compares each sales invoice with the supporting shipping documents and notes any discrepancies. c) The accounts receivable master file is compared with the general ledger control account. d) Each shipment on credit is supported by a prenumbered sales order.

type 2

______ __ subsequent event event that provides evidence of conditions that arose AFTER the date of the financial statements (something happened but it was not relevant to year end) no adjustment to the financial statement // disclosure in notes ex. natural disaster

type 1

______ __ subsequent event event that provides evidence of conditions that existed AT the date of the financial statements >>condition happened before the year end requires an adjustment to the financial statements ex. lawsuit

fraud

after evaluating inherent risk and control risk, the auditor is in a position to evaluate ____ risk

liabilities

an abnormal decrease in the accounts payable turnover days or unexpected increases in the current ratio may provide indicators of understated ______

a

does this factor contribute to misstatements in the revenue process? cash receipt transactions generate liquid assets that are particularly susceptible to misappropriation (completeness of revenues or cash receipts) A) yes B) no

a

does this factor contribute to misstatements in the revenue process? sales adjustment transactions may be used to conceal thefts of cash received from customers by overstating discounts, recording fictitious sales returns (occurrence or accuracy of discounts or sales returns), or writing off customers' balances as uncollectible (occurrence of write-off of accounts receivable) A) yes B) no

a

does this factor contribute to misstatements in the revenue process? the timing and amount of revenue to be recognized (occurrence of revenues) may be contentious owing to factors such as complex accounting standards, the need to make estimates, the complexity of the calculations involved, and purchaser's rights of return A) yes B) no

billing

the auditor's primary concerns regarding ______ are that customers are billed: - for all shipments - only for actual shipments - at authorized prices

purchase

the core _____ transactions are: 1. purchasing goods and services (purchase transactions) 2. making payments (cash disbursement transactions) 3. purchase adjustments

sales journal

the journal of original entry where each sale is recorded

audit strategy

the process used for developing an ____ ______ for various assertions involves: 1. understand the flow of transactions in a given process 2. identify what can go wrong 3. assess whether controls exist to mitigate what can go wrong 4. identify relevant controls, performing tests of controls, and evaluating results 5. report internal control weaknesses 6. determine an audit strategy at the assertion level

transaction

the quality of entity-level controls is important to the effective functioning of _________-level controls

refund rights

when rights of return exist, or are likely to be accepted, a reasonable estimate of refunds should be made when revenue is recognized

service

when selling a _______, record keeping regarding services performed is important to documenting the revenue process

imprest payroll

____ ______ bank account >> provides controls in that only payroll transactions go through this bank account

purchase return

_____ ______ authorization >> form showing the description, quantity, and other data pertaining to the goods the vendor has authorized the purchaser to return

evaluated receipts

_____ _______ settlement (ERS) >> a highly automated business process between suppliers and purchasers to exchange data electronically & to electronically execute a purchase transaction

payroll

_____ process >> transactions and balances related to the payment of salaries, hourly and incentive compensation, commissions, and bonuses

confirmation

______ of accounts receivable involves direct written communication between the client's customers and the auditor

compilation

______ of inventory values >> the total inventory value listed in the general ledger control account must be fully supported by the client's documentation

receivable

the primary account balance in the revenue process is accounts _______

c

A client just read about a business paying extraordinary sums of money to a variety of employees. How would the client company use an IT application control to prevent this type of valuation problem? a) Compare the total number of payroll disbursements with a predetermined batch total. b) Check the employee number against the master payroll file. c) Perform a limit test related to the class of employee. d) Test a check digit embedded in the employee number.

a

A cutoff test designed to detect credit sales made before the end of the fiscal year that have been recorded in the subsequent year provides assurance about which of the following management assertions? a) Classification. b) Accuracy. c) Occurrence. d) Completeness.

c

An audit client that manufactures and sells goods to a network of authorized dealers may create the equivalent of a consignment sale if the client: a) ships goods only on a collect on delivery (C.O.D.) basis. b) only allows goods to be returned if they are damaged. c) allows an unconditional right of return at any time until the goods are sold by the dealer. d) allows a cash discount if the receivable is paid within 30 days.

d

An auditor analyzes repairs and maintenance primarily to obtain evidence in support of the assertion that all: a) non-capitalizable expenditures for repairs and maintenance have been recorded in the proper period. b) non-capitalizable expenditures have been recorded. c) expenditures for property and equipment have been recorded in the proper period. d) expenditures for property and equipment have not been charged to expense.

d

An auditor decided to confirm accounts payable to accomplish a low level of detection risk for the completeness assertion. Which of the following is the most reasonable sampling plan? a) Confirm accounts payable with an emphasis on the largest account payables. b) Confirm accounts payable with an emphasis on new vendors, irrespective of the size of the account balance. c) Confirm accounts payable using probability-proportionateto-size sampling. d) Confirm accounts payable with an emphasis on all vendors including zero and small balances.

d

An auditor is studying a ratio of accounts receivable growth rate to sales growth rate. Which of the following indicates a potential risk of collection problem in accounts receivable? a) Sales grew by 10% and receivables grew by 11% from year one to year two. b) Sales declined by 2% and receivables declined by 7% from year one to year two. c) Sales grew by 10% and receivables declined by 2% from year one to year two. d) Sales grew by 5% and receivables grew by 17% from year one to year two.

c

An auditor may plan to test controls in the payroll process because, among other factors: a) outside governmental auditors spend considerable time investigating the payroll area in most companies. b) the chance of employee fraud is remote. c) payroll transactions are generally routine and processed in a high volume, which makes controls effective for management to employ. d) audit risk in the area relates primarily to the hiring of competent personnel.

c

An evaluated receipt system is: a) a highly automated process between suppliers and purchasers to manage the receipt of goods. b) a highly automated process associated with the initiation of a purchase transaction. c) a highly automated business process between suppliers and purchasers to exchange data electronically to execute a purchase transaction. d) a highly automated business process between retailers and customers to receive payment electronically for a purchase transaction.

a

An example of a sales-related factor that would increase inherent risk would be ________. a) significant legal compliance issues when making sales b) a history of complying with all laws and regulations c) strong oversight of management by the board of directors d) revenue recognition is relatively straightforward, with no significant accounting issue

c

An imprest payroll bank account is: a) a bank account devoted to all payroll transactions. b) a bank account that processes all payroll withholding transactions. c) a bank account where a company only deposits sufficient funds to process net payroll transactions. d) a bank account where a company only deposits sufficient funds to process gross payroll amounts.

d

An inherent risk of major concern to the auditor in the payroll process is: a) the occurrence assertion for payroll. b) the completeness of payroll. c) the completeness and occurrence assertions for payroll. d) the occurrence and cutoff assertions for payroll.

d

Assume an auditor is testing an IT application control over the accuracy of purchases. The auditor is most likely to submit test data for a: a) purchase order with an invalid vendor number. b) voucher with no receiving report. c) purchase order without appropriate authorization. d) voucher with different quantities than on the receiving report.

a

Assume that an auditor is auditing a public company client that manufactures computer hardware and markets significant maintenance and consulting services. The auditor should be concerned about which of the following? a) Significant revenue issues associated with bundling products and services. b) More than the usual concern about collection risk. c) Significant concerns about the completeness of revenues. d) Appropriate accounting for commissions on sales.

b

At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor in the conduct of an audit? a) Shipment of goods. b) Selling of goods for cash. c) Granting of credit. d) Determination of discounts.

c

Describe the IT application control procedure that provides assurance that all the merchandise for which the client was billed was received. Assume the software application prepares an exception report and follow-up procedures are effective. IT application edit checks compare: a) quantities times price on the voucher with the amount of cash disbursements. b) quantities and prices on the voucher with quantities and prices on the vendor's invoice. c) quantities on the vendor's invoice with quantities entered in receiving. d) quantities and prices on the voucher with quantities and prices on the purchase order.

d

From year one to year two, the ratio of sales to fixed assets declined significantly. This is a possible indication that: a) the client has treated finance leases as operating leases. b) the client has used debt to finance acquisitions of fixed assets. c) the client is overdepreciating fixed assets. d) the client is capitalizing costs that should be expensed.

a

If an auditor performs analytical procedures on rent expense and finds that rent expense has increased 50%, he or she is most likely to perform which of the following additional procedures? a) Vouch larger items in rent expense in a search for unrecorded finance leases. b) Test rent cutoff to determine if all rent has been recorded. c) Perform tests of controls to ensure that all rent transactions are authorized. d) Vouch rent payments to underlying documents to determine that all vouchers have receiving reports.

b

If the auditor is concerned about the risk of fraud in the purchasing process, which of the following best describes the auditor's potential fraud risk assessments? a) Fraudulent financial reporting-high risk; misappropriation of assets-low risk. b) Fraudulent financial reporting-high risk; misappropriation of assets-high risk. c) Fraudulent financial reporting-low risk; misappropriation of assets-high risk. d) Fraudulent financial reporting-low risk; misappropriation of assets-low risk.

a

If there is a completeness problem with cash receipts, are accounts receivable overstated or understated? Cash receipts // Accounts receivable a) overstated // understated b) overstated // overstated c) understated // overstated d) understated // understated

c

In the audit of inventory, selecting inventory items from a perpetual master file, going to the locations, and obtaining test counts is intended to produce evidence for which audit assertion? a) Rights and obligations. b) Valuation and allocation. c) Existence. d) Completeness.

b

The auditor is studying a ratio of accounts payable turnover in days. Which of the following indicates a potential risk of unrecorded liabilities? a) Accounts payable turnover in days increased from 28 days to 30 days from year one to year two. b) Accounts payable turnover in days decreased from 28 days to 15 days from year one to year two. c) Accounts payable turnover in days decreased from 30 days to 25 days from year one to year two. d) Accounts payable turnover in days increased from 28 days to 45 days from year one to year two.

b

The key documents involved in recording a purchase adjustment involve: a) a purchase order, a vendor's invoice, and a voucher. b) a purchase return authorization, a shipping report, and a debit memo. c) a vendor's invoice, a receiving report, and a credit memo. d) a purchase return authorization, a shipping report, and a credit memo.

d

The purchasing process normally includes all of the following transactions: a) purchases on account, purchase returns, and cash receipts. b) purchases, inventory transactions, and cash receipts. c) purchases of inventory, plant and equipment, and depreciation. d) purchases on account, purchase returns, and cash disbursements.

a

When a client does not maintain its own stock records, the auditor should obtain a written confirmation from the transfer agent and registrar concerning: a) the number of shares issued and outstanding. b) guarantees on preferred stock liquidation value. c) the number of shares subject to agreements to repurchase. d) restrictions on the payment of dividends.

b

When auditing a fixed asset account such as land, buildings, and equipment, the auditor will normally: a) trace transactions from receiving documents to recording of the purchase. b) use a combination of of agreeing beginning balances to prior year working papers and then testing transactions during the year. c) vouch the book value of fixed assets to underlying purchase documents. d) place the greatest emphasis on tests of balances at year-end.

c

When auditing the payroll process, the auditor will normally want to understand: a) the relationship between payroll and significant customers. b) the relationship between net payroll and the company's tax liability. c) the extent to which a company is capital-intensive or laborintensive. d) the predictability of the relationship between payroll expense and capital expenditures for the year.

d

When detection risk is low, the auditor is likely to: a) test the client's internal controls over the preparation of bank reconciliations. b) confirm bank balances with the Federal Deposit Insurance Corporation. c) scan bank reconciliations and test items on bank reconciliations on a sample basis. d) prepare the bank reconciliation using bank data in the client's possession or audit the bank reconciliation using a cutoff bank statement obtained from the bank.

c

When performing an audit, a CPA notes that bad-debt expense is unusually high relative to similar firms in the industry. The CPA should recommend which of the following controls? a) Use approved price lists for customer billing. b) Reconcile accounts receivable in the general ledger with the subsidiary ledger. c) Require credit checks on all new customers. d) Send monthly statements of account to customers with outstanding balances.

c

When sending positive confirmations, which of the following would not be an appropriate way to address nonresponse by a customer? a) Assume that the nonresponse is 100% in error and project the misstatement on the population. b) Match open invoices to underlying bills of lading and customer orders. c) If the customer's account balance is individually immaterial, conclude that no further work or analysis is necessary. d) Search for evidence of subsequent cash receipt from the customer.

c

Which of the following IT application control procedures would be most effective in assuring that recorded purchases are accurately recorded for transactions that actually occurred? a) Vendor invoice information is compared with purchase order information. b) Receiving reports require the signature of the individual who authorized the purchase. c) The software application matches voucher information with information supporting purchase orders, receiving reports, and vendor invoices. d) The software application compares the quantity ordered from purchase order information with the quantity received from the receiving department.

b

Which of the following control activities would be a reasonable control over the accuracy of recorded sales? a) The software application matches the customer number on the sale invoice with the customer number on the sales order. b) The software application matches sales invoice quantities with the underlying packing slip and prices with the sales order. c) The software application prints a report of unfilled sales orders. d) The software application prints a report of all bills of lading not matched with a sales invoice.

d

Which of the following controls would most likely prevent a vendor's invoice from being paid twice? a) An independent bank reconciliation is prepared. b) The software application compares the daily total in the cash disbursements journal with the total vouchers submitted for payment. c) The software application compares information on the check with information on the receiving report. d) The software application has a field that identifies a vendor's invoice has been paid and the voucher number cannot be reused.

a

Which of the following is a good example of an IT application control over the occurrence of revenue transactions? a) The software application compares information on a sales invoice with information from the bill of lading to ensure that sales invoices are only prepared for actual shipments. Any exceptions are not processed and are set aside for manual follow-up. b) Computer system changes to the revenue program must be tested and authorized before they are allowed to be used with live data. c) Physical access to computer systems is limited only to specific personnel who work in the revenue process. d) Strong segregation of duties exists between computer operations and computer program development.

a

Which of the following procedures is best for identifying unrecorded trade accounts payable? a) Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. b) Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. c) Examining unusual relationships between monthly accounts payable balances and recorded cash payments. d) Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.

d

Which of the following situations increases the risk of fraud due to "lapping?" a) The accounts receivable clerk also has responsibilities for writing a sales invoice. b) The shipping clerk in the warehouse has read-only access to sales orders. c) The sales manager can approve credit limits for customers. d) The accounts receivable clerk also has responsibilities for receiving cash.

a

Which of the following would represent the best evidence for testing the net realizable value of inventory? a) Investigate sales prices on the sale of inventory made after year-end. b) Vouch inventory prices to the perpetual inventory. c) Investigate all prices that have decreased by more than 5% during the year. d) Vouch inventory prices to vendor invoices at an interim date.

bill and hold

___ ___ ____ transactions >> transactions in which a company bills customers without shipping goods

existence

____ of receivables >> monthly statements are sent to customers

cutoff

____ of sales >> software starts with the population of daily sales invoices and compares the data on the sales invoice with the date on the underlying bill of lading

classification

____ of sales and receivables >> software starts with the population of daily sales invoices and compares customer numbers with the sales order

shipping

____ sales orders >> segregating the responsibility for shipping from approving and filling orders helps prevent shipping clerks from making unauthorized shipments

master price file

_____ _____ ____ >> usually part of the sales process database, with information on approved prices and discounts (Ex. volume discounts) that are allowed for any customer

analytical procedures

_____ _______ are required in every audit as part of audit planning

transaction flow

_____ ________ in a typical sales process for a client that sells goods includes >> processing & approving credit and sales orders, shipping goods, invoicing customers, and recording sales and trade receivables

approving

_____ credit >> most companies ask first-time customers to pay in cash, pay on a cash-on-delivery basis or pay with credit cards ... some form of electronic funds transfer

delivery

_____ of goods or services >> the economic event that results in a change in title and establishes the right to a receivable

filling

_____ sales orders >> company policy generally prohibits the release of any goods from the warehouse without an approved sales order

rights and obligations

______ & _______ of accounts receivable >> if receivables are factored or sold with recourse, an independent process is set up to monitor monthly statements received from the factoring agent and monitor payments made by customers to the factoring agent

initiating

______ a transaction represents the process of agreeing to sell goods or services to an independent third party

accuracy

______ of sales >> software starts with a population of daily sales invoices and compares quantities with the underlying packing slips, compares prices to the underlying sales order, and checks the mathematical accuracy of the sales invoice

completeness

______ of sales >> software starts with a population of daily shipping documents and develops a one-for-one match with sales invoices to ensure that each shipment results in a sales invoice

occurrence

______ of sales >> software starts with a population of daily shipping documents and develops a one-for-one match with underlying shipping documents to ensure that each sales invoice is supported by a bill of lading

integrity

a key control environment factor in reducing the risk of fraudulent financial reporting though the overstatement of revenues and receivables, is management's adoption of and adherence to high standards of ______ and ethical values

manual

an important _____ control >> requires that shipping clerks make independent checks to determine that goods pulled from the warehouse are accompanied by appropriate authorization, and that the order was properly filled

revenue

common disclosures in the ________ process include: 1. reclassification of material credit balances in accounts receivable as accounts payable 2. segregation of short term trade receivables from long term trade receivables 3. disclosure of major customers 4. disclosure of sales by geographic regions or major product lines 5. disclosure of receivables from officers, directors, employees, or related parties

client marketplace

competitors of a company, economic conditions, technological issues this information helps auditors estimate current and future sales, and consider going concern issues

a

does this factor contribute to misstatements in the revenue process? receivables may be misclassified as current or noncurrent owing to difficulties in estimating the likelihood of collection with the next year or events upon which collection is contingent A) yes B) no

a

does this factor contribute to misstatements in the revenue process? the volume of sales, cash receipts, and sales adjustment transactions is often high, resulting in numerous opportunities for errors to occur A) yes B) no

a

does this factor contribute to misstatements in the revenue process? when receivables are factored with recourse, the correct classification of the transaction as a sale or borrowing may be incorrect A) yes B) no

sales process database

electronic files that accumulate data on sales, cash receipts, and accounts receivables

disclosures

it is important to control account balances and ________

client capacity

the maximum volume of sales that the client could generate if it fully utilized its facilities and employees to manufacture and deliver products and services will indicate the maximum amount of production and can be used to estimate sales