Audit Chapter 14

When sales invoices are automatically calculated and posted by a​ computer, the auditor may be able to reduce substantive tests of transactions for​ which, if​ any, assertion?

Accuracy

Smith Manufacturing​ Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to

require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved

Credit should be approved before a​ customer's order is received.

False

When auditing sales returns and​ allowances, the emphasis is normally on testing the completeness objective.

False

Which of the following would offer the best protection for a company that wishes to prevent a reoccurrence of a previously detected​ "lapping" problem with trade accounts​ receivable?

Have a mandatory vacation policy for employees who both handle cash and enter cash receipts into the system.

Which of the following tests of controls is useful to test the transaction-related audit objective of posting and​ summarization?

Observe whether monthly statements are sent.

The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on

the confirmation of accounts receivable

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail​ room?

The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

Which of the following is a correct statement regarding the shipment of​ goods?

The shipping document is used to update the perpetual inventory records.

At the completion of the tests of controls and substantive tests of​ transactions, auditors must analyze each exception to determine its cause and the implication of the exception on assessed control risk.

True

For each significant internal control deficiency identified by the​ auditor, he or she should design one or more tests of controls to assess the extent of the deficiency and its effect on the financial statements.

True

Realizable value is an essential balance-related audit objective for accounts receivable.

True

The overall objective in the audit of the sales and collection cycle is to evaluate whether the account balances affected by the cycle are fairly presented in accordance with accounting standards.

True

The sales and collection cycle applies to businesses that sell goods to customers or provide services to customers.

True

The sales journal is generated from the sales transaction file.

True

There should generally be correspondence in the​ client's file establishing the uncollectibility of their account.

True

Which of the following is not a key control for sales and cash​ receipts?

active board of directors

The total of the individual account balances in the accounts receivable master file should equal the

balance of the accounts receivable account in the general ledger.

One type of shipping document is the​ ________, which is a written contract between the carrier and the seller of the receipt and shipment of goods.

bill of lading

A​ ________ is a document that indicates a request for merchandise by a customer.

customer order