Chapters 10 and 11

Which of the following is most likely to be an example of fraudulent financial reporting relating to sales? - Inaccurate billing due to a lack of controls. - Lapping of accounts receivable. - Misbilling a client due to a data input error. - Recording sales when the customer is likely to return the goods.

Recording sales when the customer is likely to return the goods.

Under SEC rules, which of the following is not among the criteria that ordinarily exist for revenue to be recognized? - Collectibility is reasonably assured. - Delivery has occurred or is scheduled to occur in the near future. - Persuasive evidence of an arrangement exists. The seller's price to the buyer is fixed or determinable.

Delivery has occurred or is scheduled to occur in the near future.

To gather evidence regarding the balance per bank in a bank reconciliation, the auditors would examine any of the following except: - Cutoff bank statement - Year end bank statement - bank confirmation - GL

GL: general ledger

To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is: - Supported by a vendor's invoice. - Stamped "paid" by the check signer. - Prenumbered and accounted for. - Approved for authorized purchases.

Stamped "paid" by the check signer.

Which of the following is an example of misappropriation of assets relating to sales? - Accidentally recording cash that represents a liability as revenue. - Holding the sales journal open to record next year's sales as having occurred in the current year. - Intentionally recording cash received from a new debt agreement as revenue. - Theft of cash register sales.

Theft of cash register sales.

The best way to verify the amounts of dividend revenue received during the year is: - recompilation - verification by reference to dividend record books - confirmation with dividend paying companies - examination of cash disbursements records

Verification by reference to dividend record books.

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees? - A bank lockbox - prenumbered remittance advices - monthly bank recs - daily deposit of cash receipts

bank lockbox

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices? - existence or occurrence - completeness - rights and obligations - presentation and disclosure

completeness

Which of the following would most likely be detected by an auditor's review of the client's sales cutoff? - excessive goods received for credit - unrecorded sales discounts - lapping of year ends AR - Inflated sales for the year

inflated sales for the eyar

To determine that all sales have been recorded, the auditors would select a sample of transactions from the: - shipping documents file - sales journal - AR subsidiary journal - remittance advices

the shipping documents file

The auditors should confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low: - And accounts receivable are immaterial, or the use of confirmations would be ineffective. - And accounts receivable are composed of large accounts. - And the effectiveness of confirmations is absolutely determined. - Or accounts receivable are from extremely reputable customers.

- And accounts receivable are immaterial, or the use of confirmations would be ineffective.

To test the existence assertion for recorded receivables, the auditors would select a sample from the: - Sales order file - customer purchase orders -AR subsidiary ledger - shipping documents (bills of lading) file

AR sub ledger

Which of the following would provide the most assurance concerning the valuation of accounts receivable? - Trace amounts in the accounts receivable subsidiary ledger to details on shipping documents. - Compare receivable turnover ratios to industry statistics for reasonableness. - Inquire about receivables pledged under loan agreements. - Assess the allowance for uncollectible accounts for reasonableness.

Assess the allowance for uncollectible accounts for reasonableness.

Reconciliation of the bank account should not be performed by an individual who also: - processes cash disbursements - has custody of securities - prepares the cash budget - reviews inventory reports

Processes cash disbursements

The auditors suspect that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the: - Details of bank deposit slips with details of credits to customer accounts. - Daily cash summaries with the sums of the cash receipts journal entries. - Individual bank deposit slips with the details of the monthly bank statements. - Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded.

Details of bank deposit slips with details of credits to customer accounts.

In order to guard against the misappropriation of company-owned marketable securities, which of the following is the best course of action that can be taken by a company with a large portfolio of marketable securities? - Require that one trustworthy and bonded employee be responsible for access to the safekeeping area where securities are kept. - Require that employees who enter and leave the safekeeping area sign and record in a log the exact reason for their access. - Require that employees involved in the safekeeping function maintain a subsidiary control ledger for securities on a current basis. - Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.

Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent.

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely: - Send positive confirmation requests. - Send negative confirmation requests. - Examine evidence of subsequent cash receipts. - Inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

Send positive confirmation requests.

Identify the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable: - Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence. - Write-offs must be approved by the accounts receivable department. - Write-offs must be authorized by the shipping department. - Write-offs must be supported by an aging schedule showing that only receivables overdue by several months have been written off.

Write-offs must be approved by a responsible official after review of credit department recommendations and supporting evidence.

In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also: - Reviews the monthly bank reconciliation. - Returns the checks to accounts payable. - Is denied access to the supporting documents. - Is responsible for mailing the checks.

Is responsible for mailing the checks.

Which of the following procedures would the auditors most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet? - Observe the consistency of the employees' use of cash registers and tapes. - Inquire about employees' access to recorded but undeposited cash. - Trace deposits in the cash receipts journal to the cash balance in the general ledger. - Compare the cash balance in the general ledger with the bank confirmation request.

Observe the consistency of the employees' use of cash registers and tapes.

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues? - Restrictions placed on sales by laws and regulations. - Decline in sales due to economic declines. - Decline in sales due to product obsolescence. - Over-recorded sales due to a lack of control over the sales entry function.

Over-recorded sales due to a lack of control over the sales entry function.