A4 Performing Further Procedures, Forming Conclusions, and Communications

Question 1

Which departments are responsible for preparing the sales order, approving the sales order, preparing the bill of lading, and preparing the invoice?

Answer 1

The Sales department: prepares the sales order

The Credit department approves the sales order

The shipping department prepares the bill of lading

The billing department prepares the invoice

Question 2

Which department should approve write-offs of uncollectible accounts?

Answer 2

The treasurer department

Question 3

A listing of cash receipts should be sent to which three departments?

Answer 3

The cashier, accounts receivable, and general accounting departments

Question 4

What assertions are audited in a revenue cycle?

Answer 4

Completeness, existence, cutoff, and valuation

Question 5

How to audit the completeness assertion for the revenue cycle?

Answer 5

Trace a sample of shipping documents to sales invoices and the sales journal

Question 6

How to audit the existence assertion for the revenue cycle?

Answer 6

Vouch a sample of sales transactions from the sales journal to the shipping documents and sending confirmations of a sample of accounts receivable

Question 7

How to audit the cutoff assertion for the revenue cycle?

Answer 7

Examine sales transactions from shortly before and after year-end for recording in the proper period

Question 8

How to audit the valuation assertion for the revenue cycle?

Answer 8

Testing of the allowance for uncollectible accounts

Question 9

What is a positive confirmation?

Answer 9

Customer is requested to return confirmation to the auditor

Question 10

When to do a positive confirmation?

Answer 10

Should be used when: accounts are large, errors are expected, or items are disputed`

Question 11

What is a negative confirmation?

Answer 11

Customer is requested to reply only if amount stated by auditor is incorrect

Question 12

When to do a negative confirmation?

Answer 12

Should be used when: combined assessed level of inherent and control risk is low, a large number of small balances are being confirmed, and recipients are not expected to disregard the confirmations

Question 13

What is a blank confirmation?

Answer 13

A positive confirmation that does not include the balance, instead requesting the recipient to provide this information

Question 14

When to do a blank confirmation?

Answer 14

Blank confirmations provide greater assurance but may result in lower response rates

Question 15

For the revenue cycle, what three documents need to be compared to assure that all shipments were based on valid customer orders and were properly billed

Answer 15

Shipping documents
Sales Orders
Invoices

Question 16

What two internal controls functions can be consolidated in the revenue cycle?

Answer 16

Billing and Accoutning

Question 17

Who receives actual receipts and prepares the bank deposit?

Answer 17

Cashier

Question 18

Who enter receipts into the accounts receivable subsidiary records?

Answer 18

Accounts receivable department

Question 19

Who enter receipts into the accounts receivable control account?

Answer 19

Accounting department

Question 20

Nonresponses should be followed up with what?

Answer 20

second and even third confirmation requests if necessary

Question 21

When confirmation responses are not received, the auditor should

Answer 21

perform alternative procedures such as inspecting shipping documents or reviewing subsequent cash receipts

Question 22

confirmation responses received electronically should be verified by

Answer 22

calling the sender, the sender should also be requested to mail the original confirmation directly to the auditor

Question 23

confirmations generally provide evidence regarding what two assertions?

Answer 23

existence and rights and obligations

Question 24

What makes up the revenue cycle?

Answer 24

sales revenues, receivables, and cash receipts

Question 25

What procedures relate to the existence and occurrence assertion?

Answer 25

observation, inspection and examination, and vouching

Question 26

What procedures relate to the valuation, allocation, and accuracy assertion?

Answer 26

review of subsequent events, and independent calculations/estimates

Question 27

What procedures relate to the rights and obligations assertion?

Answer 27

Confirmation, Inspection and Examination, Review of subsequent events

Question 28

What procedures relate to the understandability and classification assertion?

Answer 28

inquiry and review of subsequent events

Question 29

what procedures relate to the cutoff assertion?

Answer 29

cutoff procedures and inspection/examination

Question 30

What procedures relate to the completeness assertion?

Answer 30

tracing, review of subsequent events

Question 31

Confirmation of AR is a required generally accepted auditing procedure that must be performed unless

Answer 31

1) receivables are immaterial to total assets; 2) confirmation would be ineffective, or 3) inherent and control risks are very low

Question 32

What are the departments in the sales flowchart?

Answer 32

Sales (authorization)
Credit (authorization)
Treasurer (authorization)
Shipping (custody)
Billing (record keeping)
Accounts Receivable (record keeping)
* Billing and Accounts Receivable can be consolidated

Question 33

What are the departments in the collections flowchart?

Answer 33

Mailroom (custody)
Cashier (custody)
Accounts Receivable (record keeping)
Accounting (record keeping)