ACCT 410 Ch 10 Terms
The accounts commonly affected by sales transactions are ______.
-Bad-debt expense -Trade accounts receivable -Allowance for uncollectible accounts -Sales
The accounts commonly affected by cash receipts transactions are ______.
-Cash -Cash Discounts -Trade Accounts Receivable
According to COSO, a system of internal controls is designed to provide reasonable assurance about about an entity's...
-Compliance with applicable laws and regulations -effectiveness and efficiency of operations -reliability, timeliness and transparency of internal and external financial and non-financial reporting
Which are correct?
-Confirmations can address more than one assertion. -Customer account confirmation provides evidence of accounts receivable validity
Risk factors to an entity's internal controls over the revenue process include ______.
-New technology -competition -rapid growth
Which are correct regarding Confirmations?
-Sending confirmations at the end of the accounting period reduces the chance of timing differences. -Confirmation requests should be made soon after the end of the accounting period to maximize the response rate. Resources
Receivables statements correct?
-The auditor's concern with satisfying other types of receivables is similar to that of trade accounts receivables. -Typically other types of receivables are evaluated for collectibility.
The accounts commonly affected by sales returns and allowance transactions are ______.
-Trade accounts receivable -Sales returns -Sales allowances
When payments are sent directly to an entity ______.
-a control listing should be prepared -all checks should be restrictively endorsed
Important controls regarding the processing of credit memoranda are ______.
-a credit for returned goods should be supported by a receiving document indicating that the goods have been returned -each credit memorandum should be approved by someone other than the individual who initiated it
When the auditor has completed the planned substantive procedures, the __________________ misstatement for accounts receivable is determined and compared to the _______________ misstatement.
-aggregate -tolerable
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
Comparison of gross profit percentage to previous years' or industry data may provide valuable evidence on ______.
-changes in pricing policies -fictitious revenue -unrecorded revenue
If the auditor concludes that audit risk is unacceptably high, options include ______.
-client adjustment of financial statement accounts -performing additional audit procedures -issuing a qualified report
Accounts receivable confirmations provide evidence on several assertions including ______.
-cutoff -valuation -completeness -existence
The cash receipts journal contains columns for ______.
-debiting cash -crediting other accounts such as scrap sales or interest income -crediting accounts receivable
The major issues related to the presentation and disclosure assertion about classification for accounts receivable are ______.
-identifying and reclassifying any material credits contained in accounts receivable -segregating short-term and long-term receivables -ensuring that different types of receivables are properly classified.
Industry related factors that affect the potential for misstatements in the revenue process include ______.
-industry's rate of technological change profitability and -health of the industry -level of competition
For each major class of transactions in the revenue process related to sales and cash receipts the auditor needs to determine the:
-initiation process for transactions -accounts involved in processing -supporting documents involved
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
The choice of which type of test of controls is appropriate for a particular assertion will be a function of the ______.
-nature and complexity of the systems by which the entity processes and controls information -nature of the available evidence, including audit evidence in electronic form -volume of transactions or data
Sending confirmation requests at the end of the accounting period ______.
-reduces the chance of timing differences -maximizes response rate
To examine tests of controls related to the accuracy assertion, the auditor should ______.
-review reconciliations of daily sales journal recordings with the posting to the accounts receivable subsidiary ledger. -examine and test the application controls -check the reconciliations between the accounts receivable subsidiary ledger and the general ledger control account
The credit authorization function has responsibility for ______.
-reviewing and preparing aged accounts receivable trial balance -preparing report of customer accounts that may require write-off -requesting payment from customers who are delinquent -monitoring customer payments
When the auditor does not receive a response to the positive confirmations, possible procedures include ______.
-sending second and third requests -examining specific subsequent cash receipts -examining shipping documentation
Inherent risk factors that may affect the revenue process are ______.
-the complexity and contentiousness of revenue recognition issues -misstatements detected in prior audits -industry-related factors -the difficulty of auditing transactions and account balances
Factors affecting the reliability of accounts receivable confirmation include ______.
-the intended respondent -prior experience with the client -the type of confirmation request
To understand the entity's monitoring of controls in the revenue process, the auditor needs to ______.
-understand how supervisory personnel review the personnel who perform the controls -understand how supervisory personnel evaluate the effectiveness of controls. -understand how management assesses the design and operation of controls
Once the tests of controls in the revenue process have been completed, the auditor sets the ______ level of control risk.
Achieved
Shipping goods to customers with bad credit and making sales at incorrect prices or terms are both possible misstatements due to to improper
Authorizations
One control activity that can provide assurance for the _______________ assertion that customer payments are recorded to the correct account is to reconcile the daily remittance report with postings to the cash receipts journal and accounts receivable subsidiary ledger.
Classification
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
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
When it comes to cash receipt transactions, auditors seldom have major concerns about ______.
Cutoff
The approach to taking and monitoring business risks and attitudes and actions toward financial reporting are characteristics that may signal important information to the auditor about management's _________ and _________ values
Integrity Ethical
Stealing cash and manipulating the accounting records to hide the misstatement is known as ______.
Lapping
Controls that may be relevant to the audit when they have an impact on data the auditor uses to apply audit procedures include ______ controls
Operations Compliance
The controls that are of most direct relevance to a financial statement audit are those that contribute to financial statement
Reliability, Timeliness, Transparency
Strong controls for the completeness assertion include ______.
Restrictive endoresements -segregation of duties -use of a lockbox system
An account and the details of transactions with each customer are found in the accounts receivable
Subsidiary Ledger
Purpose of COSO Framework
To help management better control the organization and to provide boards of directors an added ability to oversee internal control
True or false: Related-party transactions is a common disclosure for revenue-related accounts.
True
It is the responsibility of ______ to ensure that all necessary financial statements disclosures are made.
auditors
Reconciling the daily remittance report to control listings of remittance advices provide reasonable assurance that ______.
cash receipts were recorded at the correct amounts
Receivables from related parties are ______.
confirmed and evaluated for collectibility
To provide evidence on the valuation of the allowance, the auditor looks and the aged trial balance for old items and ______.
considers historical collection to provide evidence of uncolletability for current items
The cash receipts journal contains columns for ______________ A/R, __________ cash and ___________ other accounts such as scrap sales and interest income
crediting -debiting crediting
Component of COSO Framework
entity's risk assessment information and communication monitoring activities control environment
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.
existence
Factors that can impact the effectiveness of the board of directors or audit committee include
experience of members nature and extent of interactions with auditors information availability
True or false: In most entities, the treasurer's department is usually part of the credit function.
false
Ensuring all revenues, collections and receivables are properly accumulated, classified, and summarized in the accounts is the objective of the _____________ ___________ function
general ledger
When the results of testing controls do not support the planned level of control risk, detection risk will ______.
have to be set lower
Management and the board of directors are responsible for ______.
implementing corrective actions related to internal control responsibilities evaluating performance of internal control responsibilities establishing performance measures
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 the process
inherent substantative
Auditors are concerned about the _________ assertion for revenue transactions because clients are more likely to overstate sales than to understate them.
occurrence
Because control environment factors have a pervasive effect on all business processes, understanding the control environment is generally completed ______.
on an overall entity basis
When items are out of stock or on backorder, the orders of the affected customers will appear on the _______________ - _____________ report.
open order
Commonly categorized control activities include ______
performance reviews segregation of duties information processing controls physical controls
Transactions made in the _________ and _________ _________ journals are posted to the A/R subsidiary ledger.
sales -cash receipts
The initial function in the revenue process is ______.
sales order entry
Substantive analytical procedures are ______.
used to examine plausible relationships among related accounts
