audit ch 11
T/F Credit authorization is used to determine if a customer is able to pay for goods
TRUE
T/F Revenue is realized when a product or service is exchanged for inflows or other enhancement of asset
TRUE
T/F order entry is the initial function in the revenue cycle
TRUE
in confirming accounts receivable, an auditor decided to confirm customers account balances rather than individual invoices. which of the following most likely would be included with the entity's confirmation letter?
a client prepared statement of account showing the details of the customers account balance
which of the following most likely would be the result of ineffective internal control policies and procedures in the revenue process
final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme
which of the following strategies would most likely improve the accuracy of the confirmation of accounts receivable?
including a monthly statement of the customers account with the information
data Corp had just computerized it's billing and accounts receivable record keeping. you want to make maximum use of the new computer in your audit of days corp. which of the following audit techniques could not be performed through a computer program?
resolving differences reported by customers on confirmation requests
when reviewing bank confirmations for any liens on receivables the auditor is testing the what assertion
rights and obligations
Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely
send negative confirmation requests
which of the following is a test of controls for the transaction assertion for completeness for revenue?
trace shipping documents to sales invoices and the sales journal
which of the following is a test of controls for the transaction assertion of completeness for revenue
trace shipping documents to sales invoices and the sales journal
alpha company uses it's sales invoices for posting perpetual inventory records. inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. the inadequate control activities could cause an:
understatement of revenues and receivables and an overstatement of inventory
all of the following are important controls over credit memos except
A. Proper segregation of duties to ensure that sales discounts taken were earned.
T/F the return of vendor purchases is part of the revenue process
FALSE
channel stuffing
a company induces distributors to buy substantially more inventory than they can promptly resell
in which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified
a small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances
an auditors purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely I'd to obtain evidence concerning Management's assertions about:
accuracy, valuation and allocation
in general, revenue is recognized when:
an entity satisfied a performance obligation
tracing copi s of sales invoices to shipping documents will provide evidence that all
billed sales were shipped
tracing copies of sales invoices to shipping documents will provide evidence that all
billed sales were shipped
to achieve good internal control which department should perform the activities of matching shipping documents with sales orders
billing
to determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by
bills of lading file
confirmation is least likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables
classifications
according to FASB ASC 606, which of the following is not part of the five-syep approach for revenue recognition
determine whether a buyer will take a discount
audiors are more concerned with the occurrence assertion for revenues than the completeness assertion
entities are more likely to overstate than understate revenues
audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. the aging is used by the auditor to:
evaluate the allowance for doubtful accounts
which of the following tests of control most likely would help assure an auditor that goods shipped are properly billed?
examine shipping documents for matching sales invoices
which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed
examine shipping documents for matching sales invoices
A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the
meter department records to the billing register
which of the following misstatements is not related to the completeness assertion for revenue
next year's revenue is recorded this year
when a sample of sales transactions recorded in the sales journal is Tracee back to the customer orders and shipping documents, the auditor is testing the what assertion
occurence
which of the following might be detected by an auditors review of the entity's sales cutoff
overatated sales for the year
alpha company uses it's sales invoices for posting perpetual inventory records. inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped: the inadequate control activities could cause an:
overstatement of revenues and receivables and an understatement of inventory
Cooper, CPA is auditing the financial statements of small rural municipality. the receivable balances represents resident's delinquent real estate taxes. internal control at 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
Tracing shipping documents to prenumbered sales invoices provides evidence that
shipments to customers were properly billed
in auditing accounts receivable, the negative form of confirmation request most likely would be used when
the combined assessee level of inherent and control risk relative to accounts receivable is low
in determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following
the credit Manager's opinion
during a review of a small business entity's internal control system, the auditor discovered that the accounts receivable clerk approves credit memos and had access to cash. which of the following controls would be most effective in offsetting this weakness?
the owner reviews credit memos before they are recorded
