Kayla Harbaugh
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Auditing Chapter 9 Homework

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Kayla Harbaugh
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Auditing Chapter 9 Homework

Question 1 of 30

1

Which of the following processes are not included in the revenue cycle?

Select one of the following:

  • Preparing and sending monthly statements to customers

  • Shipping products to customers

  • Obtaining credit approval

  • Sending payments to suppliers

Explanation

Question 2 of 30

1

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?

Select one of the following:

  • To minimize credit losses

  • To prevent lapping by the accounts receivable department

  • To ensure customer satisfaction

  • To determine revenue recognition policies

Explanation

Question 3 of 30

1

The purpose of the bill of lading is to provide which of the following?

Select one of the following:

  • 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

Explanation

Question 4 of 30

1

A method used by companies to fraudulently inflate revenues includes which of the following?

Select one of the following:

  • 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

Explanation

Question 5 of 30

1

Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing which of the following?

Select one of the following:

  • Reasonableness testing

  • Ratio analysis

  • Nonstatistical sampling

  • Trend analysis

Explanation

Question 6 of 30

1

An analysis of monthly sales compared with past years and budgets is a form of what type of testing?

Select one of the following:

  • Common size analysis

  • Ratio analysis

  • Trend analysis

  • Regression analysis

Explanation

Question 7 of 30

1

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?

Select one of the following:

  • Reasonableness tests

  • Nonstatistical analysis

  • Ratio analysis

  • Critical analysis

Explanation

Question 8 of 30

1

In an audit of financial statements, risks related to a high rate of return of products sold include which of the following?

Select one of the following:

  • 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

Explanation

Question 9 of 30

1

The major risk associated with receivables is related to which of the following?

Select one of the following:

  • 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

Explanation

Question 10 of 30

1

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?

Select one of the following:

  • Monitoring revenue transactions

  • Providing suggestions for operational improvement

  • Drafting financial statements

  • Providing management reports to the controller

Explanation

Question 11 of 30

1

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following?

Select one of the following:

  • 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

Explanation

Question 12 of 30

1

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?

Select one of the following:

  • Existence of receivables

  • Valuation of receivables

  • Rights to receivables

  • Cutoff of receivables

Explanation

Question 13 of 30

1

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?

Select one of the following:

  • Existence of sales

  • Completeness of receivables

  • Cutoff of sales transactions

  • Presentation and disclosure of receivables

Explanation

Question 14 of 30

1

Completeness of revenues may be tested by the auditor through the selection of a sample of which of the following?

Select one of the following:

  • 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

Explanation

Question 15 of 30

1

The aged accounts receivable report is utilized by the auditor to accomplish which of the following?

Select one of the following:

  • 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

Explanation

Question 16 of 30

1

According to auditing standards, accounts receivable confirmations are required to be used in which of the following situations?

Select one of the following:

  • 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

Explanation

Question 17 of 30

1

Accounts receivable confirmations usually provide strong evidence about which of the following?

Select one of the following:

  • The obligations of receivables

  • The existence of receivables

  • The presentation and disclosure of receivables

  • The completeness of receivables

Explanation

Question 18 of 30

1

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?

Select one of the following:

  • Negative confirmations

  • Direct confirmations

  • Positive confirmations

  • Indirect confirmations

Explanation

Question 19 of 30

1

An auditor's examination of the sales account using a cutoff test would most likely detect which of the following?

Select one of the following:

  • Sales made with improper credit terms

  • Sales recorded in the wrong period

  • Kiting

  • Lapping of accounts receivable

Explanation

Question 20 of 30

1

Alternative procedures that would provide evidence of the existence of receivables would include which of the following?

Select one of the following:

  • Review of subsequent collections

  • Analysis of the aged trial balance

  • Physical observation of customer facilities

  • A confirmation to the client management for customer accounts

Explanation

Question 21 of 30

1

Auditors are concerned with the addresses provided for customers in the confirmation of accounts receivable because of which of the following reasons?

Select one of the following:

  • 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

Explanation

Question 22 of 30

1

Unreturned positive confirmations for accounts receivable warrant which of the following actions?

Select one of the following:

  • 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

Explanation

Question 23 of 30

1

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?

Select one of the following:

  • 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

Explanation

Question 24 of 30

1

To determine whether any accounts receivable are pledged or assigned to others, the auditor would most likely perform which of the following procedures?

Select one of the following:

  • 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

Explanation

Question 25 of 30

1

Which of the following criteria must be met in order to recognize revenue in the current accounting period?

Select one of the following:

  • Goods or services have been transferred to the customer

  • The transaction price has been determined

  • Collectability is reasonably assured

  • All of the above

Explanation

Question 26 of 30

1

Management has been found involved in many fraudulent schemes; a common one is “channel stuffing.” What does “channel stuffing” involve?

Select one of the following:

  • Shipping of goods not ordered

  • Overly complex transactions

  • Growth through stock acquisitions

  • Management compensation schemes

Explanation

Question 27 of 30

1

Sources of audit planning information may come from which of the following?

Select one of the following:

  • Knowledge of client's business and industry

  • Assessment of risk of material misstatement

  • Results of analytical procedures

  • All of the above

Explanation

Question 28 of 30

1

Which of the following audit procedures does not address existence/occurrence for accounts receivables and sales?

Select one of the following:

  • 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

Explanation

Question 29 of 30

1

Substantive tests of the revenue cycle typically do not provide evidence of which of the following?

Select one of the following:

  • 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

Explanation

Question 30 of 30

1

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?

Select one of the following:

  • Inquiry of management

  • Mailing second and third confirmations

  • Reviewing collections on the account subsequent to the confirmation date

  • Examination of supporting documents

Explanation

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