Audit Quiz - Chapter 14

Question 1

The typical accounts affected in the Sales and Collection Cycle are: Sales, Cash, Accounts Receivable, Allowance for Doubtful Accounts, Cash Discounts, Sales Returns and Allowances, and Bad Debts Expense.

Answer 1

True

Question 2

There are 3 Classes of Transactions on the Sales and Collection Cycle.

Answer 2

False

Question 3

In processing credit sales in a typical business, the sales process begins with processing a sales invoice.

Answer 3

False

Question 4

Verification of inventory shipped is typically done by reviewing the Bill of Lading.

Answer 4

True

Question 5

Sales Invoices are typically generated and recorded in the accounting records prior to the shipment of goods.

Answer 5

False

Question 6

Credit memos are generally created to document the return merchandise sold.

Answer 6

True

Question 7

The preparation and study of a flow chart and a thorough walkthrough of the sales and collection procedures are very appropriate ways of understanding a client’s sales and collection process.

Answer 7

True

Question 8

The review of control risks and the execution of substantive testing are premised on the transaction related audit objectives.

Answer 8

True

Question 9

For Public Companies, auditors must perform at least minimal tests of internal controls and evaluate the impact of deficiencies.

Answer 9

False

Question 10

The lower the assessed control risk, the greater the need to test internal controls.

Answer 10

True

Question 11

“Tracing” involves reviewing from Statements to Trial balance to Ledger to Journals to Source Documents.

Answer 11

False

Question 12

“Tracing” addresses the Completion audit objective while “Vouching” addresses the Occurrence audit objective.

Answer 12

True

Question 13

Ensuring that transactions are properly posted from the accounts receivable file to the sales journal and sales Ledger is an example of addressing the Accuracy audit objective.

Answer 13

False

Question 14

Ensuring transactions are recorded in the proper period addresses the Accuracy audit objective.

Answer 14

False

Question 15

Sales Returns and Allowances should always be audited.

Answer 15

False

Question 16

Lapping of Accounts Receivables involve the postponement and incorrect posting of entries into accounts receivables with the intent to conceal cash shortage.

Answer 16

True

Question 17

Lapping of Accounts Receivables is Fraud.

Answer 17

True

Question 18

An effective way to test sales for overstatement is to vouch entries from the sales journal to shipping documents.

Answer 18

True

Question 19

Premature or Unappropriate Write-Off of Accounts Receivable can be minimized through the use of effectively prepared and executed authorization forms.

Answer 19

True

Question 20

During substantive testing, exceptions should be reviewed to determine their impact on internal controls, detection risk, and related substantive testing.

Answer 20

True