Audit Chapt 10 Smart books

Which of the followings statements are correct?

Customer account confirmation provides evidence of accounts receivable validity, Confirmations can address more than one assertion.

Which of the following statements are correct?

Typically other types of receivables are evaluated for collectibility.,The auditor's concern with satisfying other types of receivables is similar to that of trade accounts receivables.

When payments are sent directly to an entity ______.

a control listing should be prepared, all checks should be restrictively endorsed

An important general ledger function is the reconciliation of the ______ to the general ledger control account.

accounts receivable subsidiary ledger

Ensuring all billings, adjustments and cash collections are properly recorded in customers' accounts is the responsibility of the

accounts recievables

Control activities that ensure the ______ assertion include an authorized price list and proper verification of the information contained on the sales invoice.

accuracy

Much of the substantive audit work in accounts receivables is done using the ______.

aged trial balance of AR

When the auditor has completed the planned substantive procedures, the___ misstatement for accounts receivable is determined and compared to the ___misstatement.

aggregate, tolerable

There are two categories of substantive procedures: (1) substantive ___procedures and (2) tests of ____ of classes of transactions, account balances and disclosures

analytical, details

Auditing standards allow the auditor to omit confirming accounts receivable when ______.

assessed level of risk for the assertion is low, and the planned substantive procedures address that risk, external confirmations would be ineffective, the accounts receivable balance is immaterial

Failure to perform the credit authorization function properly may result in ______.

bad debt losses

The main responsibility of the __function is to ensure that all goods shipped and all services provided are charged to customers at authorized prices and terms. (Enter only one word per blank.)

billing

The accounts commonly affected by cash receipts transactions are ______.

cash, AR, cash discounts

Risk factors to an entity's internal controls over the revenue process include ______.

competition, rapid growth, new technology

Accounts receivable confirmations provide evidence on several assertions including ______.

completeness, cutoff, existance, valuation

Control activities that ensure the ______ assertion include accounting for the numerical sequence of shipping documents and sales invoices and matching shipping documents with sales invoices.

completion

If goods are shipped or services are performed and no revenue is recognized, the ______ assertion has not been met.

completion

Audit evidence that is a direct written response from a third party to the auditor, in paper form or by electronic or other medium is called

confirmation

The creditworthiness of a customer should be documented on a(n)____ form.

credit aproval

Determining that the customer is able to pay for the goods or services is the role of the___ function.

credit authorization

The form of a(n)___ is generally similar to that of a sales invoice and it may be processed through the system in the same way.

credit memo

This document is used to record credits for the return of goods in a customer's account or to record allowances that will be issued to the customer.

credit memo

A key control in the billing function is that a(n) __should not be issued unless the goods have been returned.

credit memorandum

The attempt of the___ assertion is to determine whether all revenue transactions and related accounts receivable are recorded in the proper period.

cutoff

he results of the auditor's testing of internal control for the revenue process directly impact___ risk and therefore the level of ____procedures that will be required for the accounts affected by this process.

detection, substantive

the results of the auditor's testing of internal control for the revenue process directly impact ___risk and therefore the level of procedures that will be required for the accounts affected by this process.

detection, substantive

A credit approval form ______.

documents creditworthiness, source document

Important controls regarding the processing of credit memoranda are ______.

each credit memorandum should be approved by someone other than the individual who initiated it, a credit for returned goods should be supported by a receiving document indicating that the goods have been returned

True or false: In most entities, the treasurer's department is usually part of the credit function.

false

True or false: Substantive analytical procedures are inadequate audit tests for examining the fairness of revenue related accounts because such tests fail to provide sufficient evidence, even though they are low cost.

false

Customer sales order may be prepared and ______.

forwarded from a slaes person, faxed, mailed, recieved by phone, recived by internet

Ensuring all revenues, collections and receivables are properly accumulated, classified, and summarized in the accounts is the objective of the

general ledger

The open-order report should be reviewed daily or weekly, and old orders should be investigated to determine ______.

good shipped but not billed, why orders havent been fulfilled

When the results of testing controls do not support the planned level of control risk, detection risk will ______.

have to be set lower

Many business risks are also risks.

inherent

If the aggregate misstatement is ______ the tolerable misstatement, the auditor may accept the account as fairly presented.

less than

A strong control that prevents misstatement of cash receipts is the use of a(n)___ system where customers mail payments directly to the entity's bank account.

lockbox

Credit memoranda that are used to process sales returns and allowance transactions

may conceal a misappropriation of cash, can cover up unauthorized shipments of goods

Auditors are concerned about the ______ assertion for revenue transactions because clients are more likely to overstate sales than to understate them.

occurance

Auditors are concerned about the assertion for revenue transactions because clients are more likely to overstate sales than to understate them.

occurance

The possible misstatement that concerns the auditor when considering the ______ assertion is that cash receipts are recorded but not deposited in the entity's bank account.

occurance

Receivables from related parties are ______.

onfirmed and evaluated for collectibility

Possible programmed controls to ensure accuracy of the revenue process include ______.

only authorized changes are made to the master file, the authorized price list is updated promptly

When items are out of stock or on backorder, the orders of the affected customers will appear on the - report.

open order

There are two types of confirmations:____ and _____.

positive, negative

The auditor should ______ that there is a risk of material misstatement due to fraud relating to revenue recognition.

presume

The major control for preventing fictitious sales is ______.

proper segregation of duties

Information regarding which invoices are being paid by the customer are found on the ______.

remittance advice

This document is usually mailed with the customer's bill and returned with the customer's payment for goods or services.

remittance advice

nformation regarding which invoices are being paid by the customer are found on the ______.

remittance advice

Which of the following statements are correct?

responsible for ensuring orders are filled correctly, good should not be shipped with out proper authorization

The sale of goods and services to customers is the focus of the

revenue process

One of the most important controls in any accounting system is proper

segregation of duties

The major control for preventing fictitious sales is _____

segregation of duties

The potential for theft and fraud in the revenue process makes this particularly important.

segregation of duties

An account and the details of transactions with each customer are found in the accounts receivable

subsidiary ledger

To examine the fairness of revenue related accounts, ___procedures are useful audit tests because they provide sufficient evidence at low cost.

substantive analytical

If there is not a proper cutoff of revenue transactions, both the revenue and accounts receivable accounts will be misstated for ______.

the current and following years

Inherent risk factors that may affect the revenue process are ______.

the difficulty of auditing transactions and account balances, the complexity and contentiousness of revenue recognition issues, industry-related factors, misstatements detected in prior audits

Factors affecting the reliability of accounts receivable confirmation include ______

the type of confirmation request, prior experience with the client, the intended respondent.

True or false: Understanding management's attitudes towards risk relevant to the revenue process is an important component of assessing the control risk for the revenue process.

true

A customer sales order typically contains ______.

type and quantity

Substantive analytical procedures are ______.

used to examine plausible relationships among related accounts

For a positive confirmation, a response is required ______.

whether the amount is correct or incorrect

To monitor the collection of receivables and ensure that the details of the accounts receivable subsidiary ledger agree with the general ledger control account, managers use the ______.

aged trial balance

The accounts commonly affected by sales returns and allowance transactions are ______.

sales returns, trade accounts recievable, sales allowances

For the revenue process, the auditor is concerned about material misstatements related to ______.

sales to fictitious customers, recording revenue when goods have not been shipped, recording of revenue when services have not been performed

A major misstatement related to the ______ assertion is that cash or checks are stolen or lost before being recorded in the cash receipts records.

completeness

Having cash or checks stolen or lost before being recorded in the cash receipts records is a major misstatement related to the___ assertion.

completeness

One of the more important assertions regarding accounts receivables is____ because the auditor wants assurance that this account balance is not overstated through the inclusion of fictitious customer accounts or amounts

existance

The major audit procedures for testing the ____assertion for accounts receivables are confirmation of customers' accounts balances and examination of subsequent cash receipts.

existance

A shipping document should be prepared anytime ______.

goods are sent to a customer

The billing function is responsible for handling ______.

goods returned for credit

Many companies use a(n)__ system in which customer payments are sent directly to the entity's bank.

lockbox

The credit authorization function has responsibility for ______.

monitoring customer payments, reviewing and preparing aged accounts recievable trial balance, preparing report of customer accounts that may need write off, requesting payments from customers who are delinquent

The use of ______ also reduces the risk of revenue being recorded before goods are shipped or services are performed because customers are unlikely to recognize an obligation to pay in such a circumstance.

monthly customer statements

For virtually all entities, the ____and____ processes represent the two major business processes than affect the financial statements.

revenue, purchasing

The document used to bill the customer is a ______.

sales invoice

the source document that typically signals the recognition of revenue is the

sales invoice

Columns for debiting accounts receivable and crediting the various sales accounts are found in the

sales journal

The necessary information for each sales transaction is recorded in the

sales journal

Transactions recorded in the and journals are posted to the__ and ___ accounts receivable subsidiary ledger.

sales, cash recipt

Shipping documents ______.

sent to customer, initiate billing, serve as bill of ladding

The major control for preventing fictitious sales is proper segregation of duties between the functions of ______.

shipping and order entry and billing

The main control that authorizes ______ is payment or proper credit authorization.

shipping goods

Revenue recognition poses a(n) ______ audit risk to auditors

significant

Any entries into customers' accounts should be made from authorized___ such as sales invoices, remittance advices, and credit memoranda.

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