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Auditing Chapter 9 Homework

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Auditing Chapter 9 Homework
Kayla Harbaugh
Quiz by Kayla Harbaugh, updated more than 1 year ago
Kayla Harbaugh
Created by Kayla Harbaugh over 3 years ago
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Resource summary

Question 1

Question
Which of the following processes are not included in the revenue cycle?
Answer
  • Preparing and sending monthly statements to customers
  • Shipping products to customers
  • Obtaining credit approval
  • Sending payments to suppliers

Question 2

Question
Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?
Answer
  • To minimize credit losses
  • To prevent lapping by the accounts receivable department
  • To ensure customer satisfaction
  • To determine revenue recognition policies

Question 3

Question
The purpose of the bill of lading is to provide which of the following?
Answer
  • The warehouse personnel with the product that must be shipped to customers
  • Evidence of title transfer of goods to customers
  • A credit application for customer approval
  • Invoices to customers for proper collection

Question 4

Question
A method used by companies to fraudulently inflate revenues includes which of the following?
Answer
  • Use of hidden "side letters" giving the customer an irrevocable right to return the product
  • Recording of fictitious sales
  • Shipment of produce not ordered by customers
  • All of the above

Question 5

Question
Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing which of the following?
Answer
  • Reasonableness testing
  • Ratio analysis
  • Nonstatistical sampling
  • Trend analysis

Question 6

Question
An analysis of monthly sales compared with past years and budgets is a form of what type of testing?
Answer
  • Common size analysis
  • Ratio analysis
  • Trend analysis
  • Regression analysis

Question 7

Question
Lithgow and Harris, CPAs, are performing the audit of Wild Flower Grocery Stores. Lithgow and Harris relates annual revenue to sales per square feet and sales per customer. What type of analysis is Lithgow and Harris most likely performing?
Answer
  • Reasonableness tests
  • Nonstatistical analysis
  • Ratio analysis
  • Critical analysis

Question 8

Question
In an audit of financial statements, risks related to a high rate of return of products sold include which of the following?
Answer
  • An estimate of accrued returns that reduces net income
  • A reduction of net sales for an increase to the sales returns and allowance account
  • Sales that are recorded improperly
  • Consignment goods that are returned and forwarded to third parties

Question 9

Question
The major risk associated with receivables is related to which of the following?
Answer
  • They may be recorded as long-term when in fact they will be realized in the current period
  • They are pledged as collateral as disclosed in the footnotes to financial statements
  • They will not be realized for the entire amount due
  • They may be sold to a bank with recourse

Question 10

Question
The internal audit department at Monument Company receives electronic exceptions reports for all sales transactions entered over $10,000 in total. This process is performed for which purpose?
Answer
  • Monitoring revenue transactions
  • Providing suggestions for operational improvement
  • Drafting financial statements
  • Providing management reports to the controller

Question 11

Question
Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following?
Answer
  • Substantiate cutoff and the occurrence of net sales transactions
  • Assess the nature of procedures that will be performed for the next period's audit
  • Test the sufficiency of cash balances to cover refunds
  • Monitor customer satisfaction for disclosure

Question 12

Question
The auditor of the revenue cycle of ABC Company computes an estimate of ABC's allowance for doubtful accounts and compares it to the estimate provided by ABC's management. The purpose for this procedure is to substantiate which assertion?
Answer
  • Existence of receivables
  • Valuation of receivables
  • Rights to receivables
  • Cutoff of receivables

Question 13

Question
In the audit of the revenue of Hiram Manufacturing Company, the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit. The auditors compare the documents to the sales journal in order to test which of the following assertions?
Answer
  • Existence of sales
  • Completeness of receivables
  • Cutoff of sales transactions
  • Presentation and disclosure of receivables

Question 14

Question
Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?
Answer
  • Inventory records and tracing them to the shipping documents
  • Shipping documents and tracing them to the sales journal
  • Accounts receivable and tracing them to cash receipts
  • Recorded sales transactions and tracing them to the general ledger

Question 15

Question
The aged accounts receivable report is utilized by the auditor to accomplish which of the following?
Answer
  • Select the type of confirmations that will be sent to banks
  • Identify debits in the receivables balance that should be reclassified to payables
  • Assess the adequacy of the allowance for doubtful accounts
  • Encourage the client to collect on receivables that are long past due

Question 16

Question
According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations?
Answer
  • On every audit engagement
  • If environmental risk is low
  • If the client agrees in writing to the procedure
  • If the accounts receivable balance is material

Question 17

Question
Accounts receivable confirmations usually provide strong evidence about which of the following?
Answer
  • The obligations of receivables
  • The existence of receivables
  • The presentation and disclosure of receivables
  • The completeness of receivables

Question 18

Question
Confirmations that are sent to select customers asking them to review the current balance due the client as shown on the client's statement and return the letters directly to the auditor indicating whether they agree with the indicated balance, are known by which of the following terms?
Answer
  • Negative confirmations
  • Direct confirmations
  • Positive confirmations
  • Indirect confirmations

Question 19

Question
An auditor's examination of the sales account using a cutoff test would most likely detect which of the following?
Answer
  • Sales made with improper credit terms
  • Sales recorded in the wrong period
  • Kiting
  • Lapping of accounts receivable

Question 20

Question
Alternative procedures that would provide evidence of the existence of receivables would include which of the following?
Answer
  • Review of subsequent collections
  • Analysis of the aged trial balance
  • Physical observation of customer facilities
  • A confirmation to the client management for customer accounts

Question 21

Question
Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?
Answer
  • Confirmations should be sent only to business addresses and not residential
  • Confirmations are selected based upon zip codes
  • The address may be routed to the client for retrieval and fraudulent signing
  • A P.O. Box is more reliable than a street address

Question 22

Question
Unreturned positive confirmations for accounts receivable warrant which of the following actions?
Answer
  • Requesting that the client send additional audit correspondence to customers
  • Replacing the sample selection with a new customer
  • Sending second requests and possibly performing subsequent procedures
  • The projection of larger misstatements to the population

Question 23

Question
In the audit of accounting estimates, such as the allowance for doubtful accounts, the auditor strives to provide reasonable assurance about which of the following?
Answer
  • All material accounting estimates have been developed properly
  • The estimates are reasonable
  • The estimates are presented in accordance with GAAP
  • All of the above are true

Question 24

Question
To determine whether any accounts receivable are pledged or assigned to others, the auditor would most likely perform which of the following procedures?
Answer
  • Examine subsequent collections
  • Test a sample of transactions to the general ledger
  • Derive an independent estimate of the allowance and compare it to pledged assets
  • Review loan agreements and board of directors' meeting minutes

Question 25

Question
Which of the following criteria must be met in order to recognize revenue in the current accounting period?
Answer
  • Goods or services have been transferred to the customer
  • The transaction price has been determined
  • Collectability is reasonably assured
  • All of the above

Question 26

Question
Management has been found involved in many fraudulent schemes; a common one is “channel stuffing.” What does “channel stuffing” involve?
Answer
  • Shipping of goods not ordered
  • Overly complex transactions
  • Growth through stock acquisitions
  • Management compensation schemes

Question 27

Question
Sources of audit planning information may come from which of the following?
Answer
  • Knowledge of client's business and industry
  • Assessment of risk of material misstatement
  • Results of analytical procedures
  • All of the above

Question 28

Question
Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?
Answer
  • Examine subsequent collections
  • Trace bill of lading to sales invoice and sales journal
  • Confirm balances of unpaid invoices with customers
  • Scan sales journal for duplicate entries

Question 29

Question
Substantive tests of the revenue cycle typically do not provide evidence of which of the following?
Answer
  • The balance in the allowance account is correct
  • Accounts receivable exist
  • Fraudulent transactions are not included in the financial statements
  • Sales transactions exist and are properly valued

Question 30

Question
A sample of positive confirmations is mailed for material accounts receivable balances. Frequently there is a lack of response. Which of the following is not an acceptable alternative procedure?
Answer
  • Inquiry of management
  • Mailing second and third confirmations
  • Reviewing collections on the account subsequent to the confirmation date
  • Examination of supporting documents
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