Becker CPA Exam Review - Revenue Cycle

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to satisfy the audit objective of: A) accuracy. B) existence. C) control. D) completeness

D) completeness

An auditor decides to use the blank form of positive accounts receivable confirmation. The auditor should be aware that the blank form may be ineffective because:

Few responses may occur because more effort is required of the recipient

Negative confirmations of accounts receivable is less effective than positive confirmations of accounts receivable because:

The auditor cannot infer that all nonrespondents have verified their account information

The negative request form of accounts receivable confirmation is useful particularly when the: - Assessed level of inherent and control risk relating to receivables is... (Low or High?) - Number of small balances is... (Few or Many?) - Consideration by the recipient... (Likely or Unlikely?)

- Low - Many - Likely

Which of the following most likely could improve the response rate of the confirmations of accounts receivable? A. Include a list of items or invoices that constitute the customers' account balances B. Restrict the selection of accounts to be confirmed to those customers with large balances. C. Ask customers to respond to the confirmation requests directly to the auditor by fax. D. Explain to customers that discrepancies will be investigated by an independent third party.

A. Include a list of items or invoices that constitute the customers' account balances

Which of the following is least likely to be used in an audit data analytic procedure when the auditor is performing substantive testing related to the occurrence of sales transactions and the accuracy of accounts receivable? A. Purchase order number B. Customer account identification C. Invoice amount D. Sales order quantity

A. Purchase order number

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. Require credit checks on all new customers B. Use approved price listings for customer billing C. Send monthly statements of accounts to customers with outstanding balances D. Reconcile accounts receivable in the general ledger with the subsidiary ledger

A. Require credit checks on all new customers

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would:

Ask the client to contact the customers to request that the confirmations be returned

An auditor selects a sample from the file of invoices to determine if the shipping documents were prepared. This test is performed to support management's financial statement assertion of: A) accuracy. B) existence. C) control. D) completeness

B) existence.

Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements? A. Audit trails of computer-generated transactions exist only for a short time B. Accounts receivable confirmation requests yield significantly fewer responses than expected C. Management consults with other accountants about significant accounting matters D. The chief financial officer does not sign the management representation letter until date of the auditor's report

B. Accounts receivable confirmation requests yield significantly fewer responses than expected

Which of the following management assertion is most closely related to the audit objective that verifies all sales have been recorded? A. Accuracy B. Completeness C. Cutoff D. Occurrence

B. Completeness

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? A. Scan the sales journal for sequential and unusual entries. B. Examine shipping documents for matching sales invoices. C. Compare the accounts receivable ledger to daily sales summaries. D. Inspect unused sales invoices for consecutive pre-numbering.

B. Examine shipping documents for matching sales invoices.

Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions? A. Verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed. B. Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal. C. Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list. D. Inquire about the entity's credit granting policies and the consistent application of credit checks.

B. Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal.

Which of the following represents a key control for ensuring sales are properly authorized when assessing control risks for sales? A. The use of an approved price list to determine unit selling price B. Sales orders are sent to the credit department for approval C. The separation of duties between the billing department and the cash receipts approval department D. Copies of approved sales orders sent to shipping, billing and accounting departments

B. Sales orders are sent to the credit department for approval

During a recent audit of the revenue cycle, a CPA found the client had $1 million in accounts receivable recorded for fictitious customers. Which of the following tests most likely facilitated identification of the fraud? A. Examining the reconciliation between the subsidiary ledger and the general ledger control account B. Sending positive confirmations to all of the client's customers with balances on Dec. 31 C. Reviewing the support for open sales orders not yet shipped at Dec. 31 D. Reviewing the segregation of duties for staff who had responsibility for sales, shipping and invoicing

B. Sending positive confirmations to all of the client's customers with balances on Dec. 31

From which of the following populations most likely would a sample be drawn by an auditor who is confirming accounts receivable as of June 30? A. Bills of lading for goods shipping prior to June 30 B. The accounts receivable detail listing as of June 30 C. Customer sales agreements signed subsequent to June 30 D. Customer payments received subsequent to June 30

B. The accounts receivable detail listing as of June 30

Generally accepted auditing procedures have not been followed in which of the following situations? A. The auditor receives very few responses to negative confirmations sent. The auditor does not perform any additional procedures related to the non-responses B. The auditor receives several faxed and emailed confirmation responses indicating that the amount stated is correct. The auditor does not perform any additional procedures related to the electronic responses C. The accounts receivable is immaterial, so the auditor decides not to send any receivables confirmations D. An unusually large number of receivables confirmations are not returned, and the auditor decides to verify the related cash receipts rather than sending second requests

B. The auditor receives several faxed and emailed confirmation responses indicating that the amount stated is correct. The auditor does not perform any additional procedures related to the electronic responses

Which of the following most likely would be detected by an auditor's review of a client's sales cut off? A. Shipments lacking sales invoices and shipping documents B. Unrecorded sales at year-end C. Lapping of year-end accounts receivable D. Excessive write offs of accounts receivable

B. Unrecorded sales at year-end

Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that: A) Shipments to customers were properly billed. B) Entries in the accounts receivable subsidiary ledger were for sales actually shipped. C) Sales billed to customers were actually shipped. D) No duplicate shipments to customers were made.

C) Sales billed to customers were actually shipped.

Which of the following does not demonstrate an inappropriate segregation of duties? A. An accounting clerk receives customer payments and records the resulting reduction in accounts receivable B. The cashier performs the monthly bank reconciliation C. A billing clerk prepares invoices and records the resulting increase in accounts receivable D. The purchasing manager approves vendor invoices for payment

C. A billing clerk prepares invoices and records the resulting increase in accounts receivable

During the confirmation of accounts receivable, an auditor receives a confirmation via the client's fax machine. Which of the following actions should an auditor take? A. Not accept the confirmation and treat it as an exception B. Not accept the confirmation and select another customer's balance to confirm C. Accept the confirmation but verify the source and content through a telephone call to the respondent D. Accept the confirmation and file it in the work papers

C. Accept the confirmation but verify the source and content through a telephone call to the respondent

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? A. The failure to prepare shipping documents may cause an overstatement of inventory balances B. Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables C. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash D. Claims received from customers for goods returned may be intentionally recorded in other customers' accounts

C. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write offs? A. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit B. Employees responsible for authorizing sales and bad debt write offs are denied access to cash C. Employees involved in the credit-granting function are separated from the sales function D. Shipping documents and sales invoices are matched by an employee who does not have authority write off bad debts

C. Employees involved in the credit-granting function are separated from the sales function

An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the:

Collection of receivables.

Jonah, CPA is auditing the cash receipts area of Wildwood Widgets, Inc. Jonah notes that incoming cash receipts are listed in detail, and three copies of this list are made. One copy is sent to the cashier along with the actual cash receipts, one is sent to the accounts receivable department along with the remittance advices, and one is sent to the accounting department. Which of the following is true about this distribution of information? A. Sending a copy to the accounts receivable department constitutes an improper segregation of duties. B. A fourth copy should also be made and sent to the treasurer's department, for use when the bank deposit is prepared. C. It is appropriate because it allows several levels of comparison and reconciliation, and there is no need for additional copies to be sent elsewhere. D. It is unnecessary duplication to send copies to both the accounts receivable department and the accounting department.

C. It is appropriate because it allows several levels of comparison and reconciliation, and there is no need for additional copies to be sent elsewhere.

After receiving responses to accounts receivable confirmations, the auditor determined that the evidence was not sufficient to form a conclusion regarding the accounts receivable balance. Which of the following actions should the auditor take next concerning the accounts receivable balance? A. Issue a qualified audit opinion on the client's financial statements B. Ask the internal auditor to evaluate the valuation of accounts receivable C. Request additional confirmations and perform alternative procedures D. Withdraw from the engagement and issue a disclaimer of opinion

C. Request additional confirmations and perform alternative procedures

Which of the following procedures would be appropriate to test the existence assertion during an audit of accounts receivable? A. Trace transactions from the subsidiary ledger to the general ledger B. Determine that all the shipments before year-end are recorded as sales C. Send confirmations to customers D. Trace a sample of invoices to recording in the general ledger

C. Send confirmations to customers

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:

Cash receipts and accounts receivable

An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertion(s) of:

Classification and Understandability: No Existence: Yes

An auditor observed that a client mails monthly statements to customers. Subsequently, the auditor reviewed evidence of follow-up on the error reported by the customers. This test of controls was most likely performed to support management's financial statement assertion(s) of:

Classification and understandability: No Rights and obligations: Yes

When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations:

Client-prepared statements of account that show the details of the account balances

The confirmation of customers' accounts receivable rarely provides reliable evidence about the completeness assertion because

Customers may not be inclined to report understatement errors in their accounts

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion regarding:

Cutoff

Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? A. Intensify the study of the internal control structure concerning the revenue cycle B. Increase the assessed level of detection risk for the existence assertion C. Review cash receipts journal for the month prior to year-end D. Inspect shipping records documenting the merchandise sold to the debtors

D. Inspect shipping records documenting the merchandise sold to the debtors

Which of the following procedures concerning accounts receivable would an auditor most likely perform to obtain audit evidence supporting the effective operation of controls? A. Inspecting an entity's analysis of accounts receivable for unusual balances B. Comparing an entity's uncollectible accounts expense to actual uncollectible accounts receivable C. Sending confirmation requests to an entity's principal customers to verify the existence of accounts receivable D. Observing an entity's employee prepare the schedule of past due accounts receivable

D. Observing an entity's employee prepare the schedule of past due accounts receivable

Which of the following auditing procedures would provide the best audit evidence in testing the existence of the accounts receivable balance? A. Obtaining a management representation letter regarding accounts receivable B. Testing shipping cut off procedures C. Tracing sales register selections into accounts receivable listing D. Obtaining confirmation of receivables directly from customers

D. Obtaining confirmation of receivables directly from customers

Which of the following controls is least likely to be used to safeguard cash? A. Bank Statement B. Lock Box C. Separation of duties D. Receiving reports

D. Receiving reports

Which of the following procedures most likely would not be an internal control designed to reduce the risk of errors in the billing process? A. Matching shipping documents with approved sales orders before invoice preparation B. Using computer programmed controls on the pricing and mathematical accuracy of sales invoices C. Comparing control totals for shipping documents with corresponding totals for sales invoices D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger

D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger

An auditor suspects that a client is fraudulently overstating revenue by recording fictitious sales. Which of the following audit procedures would most likely be used to identify the situation? A. Select a sample of sales invoices and and trace into the sales journal B. Select a sample of entries in the sales journal and trace to the related sales invoices C. Select a sample of shipping documents and trace to the related sales invoices D. Select a sample of sales invoices and trace to the related shipping documents

D. Select a sample of sales invoices and trace to the related shipping documents

An auditor determines that there is a high level of control risk surrounding the revenue cycle. Which situation is most likely to have given rise to this assessment? A. The auditor discovers a sale that was recorded in the current year although title didn't pass until the subsequent year B. The sales clerk is a newly hired, college graduate, with no previous experience in sales C. A related party sale is identified which has not been properly disclosed in the financial statements D. The sales manager does not enforce the client's stated policies regarding authorization and approval of sales transactions

D. The sales manager does not enforce the client's stated policies regarding authorization and approval of sales transactions

An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the:

Daily deposit slip

What test of control would most likely help assure an auditor that goods shipped are properly billed?

Examine shipping documents for matching sales invoices

Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables:

Existence

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor would least likely:

Increase the assessed level of detection risk for the valuation assertion

In confirming an client's accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. The differences were resolved and were not misstatements. In defining the sampling unit for the current year's audit, the auditor most likely would choose:

Individual invoices

An auditor is required to confirm accounts receivable if the accounts receivable balances are:

Material to the financial statements

An auditor is confirming accounts receivable using positive confirmations. The auditor decides to leave the accounts receivable amount blank rather than stating the amount owed. The auditor should be aware that the blank form may be less efficient because:

More nonresponses are likely to occur

Sound internal control dictates that immediately upon receiving checks from customers by mail, a responsible employee should

Prepare a duplicate listing of checks received

Under what circumstance would using a blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations?

Recipients are likely to sign other types of positive confirmations without careful investigation

To reduce the risks associated with accepting email responses to requests for confirmation of accounts receivable, an auditor most likely would:

Request the senders to mail the original forms to the auditor

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. What additional procedures most likely should be performed at year end?

Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end

Two assertions of which confirmation of accounts receivable balances provides primary evidence are:

Rights and obligation Existence

If the objective of an auditor's test of details is to detect a possible overstatement of sales, the auditor most likely would trace transactions from the:

Sales journal to the shipping documents

What procedure is performed first for unreturned positive confirmations of accounts receivable?

Sending second requests for confirmation of accounts receivable

Tracing bills of lading to sales invoices provides evidence that:

Shipments to customers were invoiced

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Shipments to customers were properly invoiced

To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor most likely would select a sample of transactions from the population represented by the:

Shipping document file

If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor would most likely trace transactions from the:

Shipping documents to the sales invoices

What control most likely would help ensure that all credit sales transactions of an entity are recorded?

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal

In auditing accounts receivable the negative form of confirmation request most likely would be used when:

The combined assessed level of inherent and control risk relative to accounts receivable is low

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

Treasurer

An auditor that is performing tests of details on sales transactions decides to examine a sample of sales invoices to determine if they are recorded in the proper revenue accounts. This audit procedure is performed to determine:

Understandability and classification

In evaluating the adequacy of the allowance of doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of:

Valuation and allocation

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:

Valuations and allocation

An audit client has a valid reason for requesting that a certain account receivable that the auditor has selected for confirmation not be confirmed. Under these circumstances, the auditor should:

Verify the account balance by inspecting the client's bank statements and cash receipt records

After making inquiries about credit-granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports management's financial statement assertion(s) of:

valuation or allocation

The ______________ ______________ master file is the file most likely to be affected by sales and cash receipt transactions

accounts receivable

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the

accounts receivable bookkeeper to update the subsidiary accounts receivable records

An auditor's tests of controls for completeness for the revenue cycle usually include determining whether: each receivable is collected subsequent to the year-end. an invoice is prepared for each shipping document. each invoice is supported by a customer purchase order. each credit memo is properly approved.

an invoice is prepared for each shipping document.

Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the: a. Internal auditor to investigate the list for unusual transactions. b. Treasurer to compare the list with the monthly bank statement. c. Accounts receivable bookkeeper to update the subsidiary accounts receivable records. d. Entity's bank to compare the list with the cashier's deposit slip.

c. Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

The most likely result of ineffective internal control policies and procedures in the revenue cycle is that:

final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme.