Audit Quiz - Chapter 14 Flashcards
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.
True
There are 3 Classes of Transactions on the Sales and Collection Cycle.
False
In processing credit sales in a typical business, the sales process begins with processing a sales invoice.
False
Verification of inventory shipped is typically done by reviewing the Bill of Lading.
True
Sales Invoices are typically generated and recorded in the accounting records prior to the shipment of goods.
False
Credit memos are generally created to document the return merchandise sold.
True
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.
True
The review of control risks and the execution of substantive testing are premised on the transaction related audit objectives.
True
For Public Companies, auditors must perform at least minimal tests of internal controls and evaluate the impact of deficiencies.
False
The lower the assessed control risk, the greater the need to test internal controls.
True
“Tracing” involves reviewing from Statements to Trial balance to Ledger to Journals to Source Documents.
False
“Tracing” addresses the Completion audit objective while “Vouching” addresses the Occurrence audit objective.
True
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.
False
Ensuring transactions are recorded in the proper period addresses the Accuracy audit objective.
False
Sales Returns and Allowances should always be audited.
False
Lapping of Accounts Receivables involve the postponement and incorrect posting of entries into accounts receivables with the intent to conceal cash shortage.
True
Lapping of Accounts Receivables is Fraud.
True
An effective way to test sales for overstatement is to vouch entries from the sales journal to shipping documents.
True
Premature or Unappropriate Write-Off of Accounts Receivable can be minimized through the use of effectively prepared and executed authorization forms.
True
During substantive testing, exceptions should be reviewed to determine their impact on internal controls, detection risk, and related substantive testing.
True
