Chapter 11 LS
This department contributes to the monitoring of internal control over the revenue cycle by periodically taking over the monthly statement process, sending confirmations to customers, and reviewing revenue cycle documentation.
Internal audit
External factors that can influence the revenue cycle include ______.
competition customer demand
For auditors, the audit of revenue and receivables represents an area of ______ risk.
significant
Management should make appropriate background checks of prospective employees and obtain __________ bonds on employees in positions of trust.
fidelity
Installment notes are typically used in all of the following except ______.
sale of goods or services to customers
Audit documentation (working papers) for receivables and revenues include ______.
- analysis of other accounts receivable - documentation of internal controls - analysis of notes receivable and related interest - comparative analyses of revenue
For effective control regarding notes receivable, the ______.
- acceptance and renewal of notes should be authorized in writing by a responsible official who does not have custody of the notes - write-off of defaulted notes should be approved by responsible officials
Accounts receivable consists of ______.
- loans to officers or employees - claims against customers from the sale of goods
Internal factors that can influence the revenue cycle include ______.
- new products and services - new type of sales transactions
Related party transactions often include loans to officers and directors. Auditors are most concerned with ______ related to these transactions.
presentation and disclosure
When control activities over sales on account are inadequate ______.
sales invoices may contain errors shipments may occur without notice to billing sales may be made to unapproved customers
Which of the following questions may be included on an internal control questionnaire for revenue and receivables?
- Are sales invoices prenumbered and all numbers accounted for? - Are orders from customers initiated and reviewed by the sales department?
Audit documentation (working papers) for receivables and revenues include ______.
- analysis of other accounts receivable - analysis of notes receivable and related interest - documentation of internal controls
Notes receivable are typically used for transactions of substantial amounts with customers and typically represent the single most important asset for ______.
banks
For effective control, the custodian of notes receivable should not have access to_______.
both cash and general accounting records
To strengthen controls over credit sales and reduce the opportunity for fraud, companies should ______ for all revenue cycle activities.
divide duties between different departments
Accounts receivable can be confirmed at an interim date rather than at year-end if risk of material misstatement for existence is ______.
low
Auditors use the understanding of the client and its environment to consider __________ risks, including fraud risks, related to receivables and revenue.
inherent
The audit of receivables and revenue represents significant audit risk because ______.
- complex accounting rules exist for revenue recognition - significant accounting estimates are used to value receivables and revenue
As the auditors confirm their understanding of the revenue cycle, they are likely to ______.
- inquire as to who performed various functions - perform a walk-through of the cycle - review revenue budgets and variance
Management monitoring activities over the revenue cycle include all of the following except ______.
taking over the mailing of monthly statements to customers
Audit work that needs to be performed at year-end as opposed to an interim date include ______.
- investigation of cutoff of sales and cash receipts - confirmations of any large accounts that are new or delinquent - aging of receivables
Trade and accounts receivable should appear as separate items in the current asset section at their ______.
net realizable value
