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35 Cards in this Set

  • Front
  • Back

T or F

To verify that recorded sales transactions have actually been recorded and in the proper period, substantive test of transactions should be completed on a representative sample selected from the shipping clerk’s file of duplicate copies of bills of lading.


T or F

An auditor should perform alternative procedures to substantiate the existence of accounts receivable when no reply to a positive confirmation request is received.


A CPA is testing sales transactions. What procedure may (s)he use to test for posting of fictitious accounts receivable?

Vouching debits in the accounts receivable ledger to sales invoices and shipping documents

What are the two primary assertions that are satisfied when using Accounts Receivable confirmations?



T or F

When an AR confirmation response from the customer states a balance that is different than the balance our client has in the AR Trial Balance, the client’s AR balance must have a misstatement.


Why may there a difference between the balance of the client has in the trial balance?

- Goods not received by customer

- Payment not recorded on client's records

- Goods returned for credit by customer

- Amount in dispute

If accounts receivable turnover (credit sales/receivables) was 7.1 times in 2013 compared to only 5.6 times in 2014, it is possible that there were

Fictitious sales in 2014

Harley Corporation has numerous customers. A customer file is maintained and includes a customer record with a name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to:

Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.

T or F

Unrecorded sales for the year would be detected by an auditor's review of a client's sales cutoff.


T or F

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity’s aging of receivables to support management’s financial statement assertion of rights and obligations.

False: Valuation and Allocation

What are the three types of transactions are typically processed through the revenue process:- LO -10-3

-The sale of goods or rendering of a service for cash or credit.

-The receipt of cash from the customer in payment for goods or services.

-The return of goods by the customer for credit or cash.

What accounts are affected for the Sales Transactions?

-Bad Debt Expense

-Allowance for Uncollectible Accounts


-Trade accounts receivables

What accounts are affected the cash receipts transactions?

- Cash

- Trade Accounts Receivable

-Cash Discounts

What accounts are affected the sales return and allowance transactions?

- Sales Returns

-Sales Allowance

-Trade Accounts Recivable

What are the four steps in revenue recognition?

- Evidence that the arrangement exists

-Delivery has occurred or services been rendered

-The seller's price to the buyer is fixed


What are some of the documents that records that are included in the revenue process?

- Cash receipts journal

- Write -off authorizations

-Sales Invoice

-Aged trial balance of accounts receivable

-Credit approval form

What are the major functions of the revenue process?

-Order Entry

-Credit Authorization



-Cash Receipts

-Accounts Receivable

-General Ledger

What are the individuals that should not have access to receivables?

-Order Entry




T or F

Credit Function should be segregated from the billing function


T or F

Shipping function shouldn't be segregated from the billing process


T or F

A/R should be separated from the general ledger function


T or F

Cash receipts function should be segregated from A/R


What are the four inherent risks relevant to the revenue process?

1) Industry-related factors

2) Complexity and contentiousness of revenue issues

3)Difficulty of auditing transactions and account balances

4)Misstatements detected in prior audits

What are three parts are in the process of assessing control risk?

1) Understand and document the revenue process based on a reliance strategy (IC 5)

2)Plan and perform tests of controls on revenue transactions

3)Set and Document the control risk

What are the assertions that relate to revenue transactions for classes of transactions and events for the period under the Audit? (Revenue)

- Occurrence






In Revenue Transactions for occurrence, what are the two major types of misstatements?

- Fictitious Revenue

-Revenue recorded but goods not shipped or services not performed

In Revenue Transactions for occurrence, what are examples of tests of controls?

Observation and evaluation of proper segregation of duties

Testing of a sample of sales invoices for the presence of authorized customer order and shipping document

Review and testing of client procedures for mailing and handling complaints about monthly statements

In Revenue Transactions for occurrence, what are examples of control activities?

Segregation of Duties

Monthly customers statements

Accounting for numerical sequences

Sales recorded only with the approved customer order and shipping documents

In Cash Receipts for occurrence, what are examples of the possible misstatements?

- Cash receipts recorded but not received or deposited

In Cash Receipts for occurrence, what are the examples of control activities?

- Segregation of Duties

-Use of lockbox System

-Monthly bank recons

In Cash Receipts for occurrence, what are some examples of tests of controls?

-Observation and evaluation of proper segregation of duties

- Inquiry of management about lockbox policy

-Review of monthly ban recon

In Revenue Transactions for completeness, what is the possible misstatements?

- Goods shipped or services, revenue is not recorded

In Revenue Transactions for completeness, what are some examples control acivities?

- Segregation of Duties

-Monthly customer statements

-Accounting for numerical sequences

-An open order files that is maintained currently and reviewer periodically

In Revenue Transactions for completeness, what are the tests of controls?

- Testing of a sample of daily reconcilations

-Examination of the open order file for unfilled orders

-Tracing a sample of shipping documents to their respective sales invoices and to the sales journal

How does the auditor evaluate the audit findings and reach a final conclusion on revenue-related accounts?

- Determine the aggregated misstatement for accounts receivable is determined. If AM < Tolerable Misstatement, the auditor may accept the account as fairly presented. (If the inverse, the auditor will have to say NOPE)

-Analyze misstatements discovered through substantive procedures