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Advanced Auditing > Auditing Sales and Receivables > Flashcards

Auditing Sales and Receivables Flashcards

1
Q

What are the 5 functions in the credit sales process of the revenue cycle?

A
  1. Accepting Customer Orders
  2. Approving Credit
  3. Filling and Dispatching Orders
  4. Invoicing Customers
  5. Recording the Sales
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2
Q

Name 3 controls related to the “accepting customer orders” function in the revenue cycle.

A
  • Electronic customer orders guarantee authenticity
  • Multi-copy sales orders
  • Sales orders are pre-numbered
  • Checking of inventory before accepting
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3
Q

Name 1 control related to the “approving credit” function in the revenue cycle.

A
  • Credit approval should be the responsibility of an independent credit department. This prevents sales personnel from subjecting the entity to undue credit risks to boost sales.
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4
Q

Name 3 controls related to filling and dispatching orders

A
  • Segregating responsibility of dispatch from that of approving and filling orders.
  • Segregation of the custody of inventory from the maintenance of inventory records
  • Dispatch clerks check goods received from warehouse are accompanied by approved sales order form or electronic authorisation
  • Prepare multi-copy dispatch notes on pre-numbered forms
  • Gatekeepers to check that drivers hold dispatch notes for the goods in their vehicles
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5
Q

Name 3 control procedures for the invoicing function in the revenue cycle.

A
  • Segregating invoicing from the forgoing functions
  • Checking the existence of a dispatch note matching the approved sales order before each invoice is prepared
  • Using an authorized price list in preparing the sales invoices
  • Performing independent checks on the pricing and mathematical accuracy of sales invoices
  • Comparing control totals for dispatch notes with corresponding totals for sales invoices
  • Retain file copies of the invoices
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6
Q

Name 3 control procedures for the “sales recording” function in the revenue cycle.

A
  • Regularly and independently check A/R Ledger balances with control account in the general ledger
  • Monthly customer statement to check balances are correct
  • Prelists to check the total number of invoices entered in the sales journal agrees with the total sales invoices in the accounts receivable ledger
  • Online updating of accounts and ledgers
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7
Q

What are the three functions in the cash receipts process of the revenue cycle?

A
  1. Receiving cash
  2. Depositing cash
  3. Recording the receipts
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8
Q

Name three control procedures relating to the receiving cash function of the revenue cycle.

A

FOR OVER-THE-COUNTER:

  • Independent check that cash on hand matches with totals printed by the register or terminal. Must be done daily.
  • Staff trained in the use of terminals.
  • Credit and debit card transactions reduce the costs of banking and risks of misappropriations

FOR MAIL RECEIPTS AND BANK TRANSFERS:

  • Always two clerks responsible for opening mail
  • Automatic updating of AR file from bank feed
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9
Q

Name two control procedures relating to the depositing cash in bank function of the revenue cycle.

A
  • Cash must be deposited intact daily

- Duplicate bank deposit slip; one for bank one for yourself

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10
Q

Name two control procedures relating to the “recording the receipts” function of the revenue cycle

A
  • Restricted authority to accounting records or computer programs
  • Independent check that amount in journal agrees with amount in record kept by the mail room
  • Independent employee to do bank recs.
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11
Q

What are the three functions in the sales adjustment process?

A
  1. Granting cash discounts
  2. Allowing sales returns and allowances
  3. Determining bad debts
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12
Q

What are the 5 management assertions relating to transactions?

A

Occurrence (OE)

Completeness (C)

Cut-Off (AV)

Accuracy (AV)

Classification (PD)

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13
Q

What are the 4 management assertions relating to account balances?

A

Existence (OE)

Rights and Obligations (RO)

Completeness (C)

Valuation and Allocation (AV)

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14
Q

What are the 4 management assertions relating to presentation and disclosure?

A

Occurence and Rights & Obligations

Completeness

Classification & Understandability

Accuracy & Valuation

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15
Q

Which audit objective does the following relate to:

Sales recorded in the accounts represent goods that were shipped to customers during the period.

A

Transactions –> Occurence

OE1

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16
Q

Which audit objective does the following relate to:

All goods shipped to customers during the period are recorded as cash receipts in the accounts.

A

Transactions –> Completeness

C1

17
Q

Which audit objective does the following relate to:

All sales, cash receipts and sales adjustment transactions are properly (accurately) recorded.

A

Transactions –> Accuracy

AV1

18
Q

Which audit objective does the following relate to:

All sales, cash receipts and sales adjustment transactions arising before the period end are recorded in the current period anf those arising after the period are included in the next accounting period

A

Transactions –> Cut-Off

CO1

19
Q

Which audit objective does the following relate to:

All sales, cash receipts and sales adjustment transactions are recorded in the correct accounts.

A

Transactions –> Classification

PD1, PD2 and PD3

20
Q

Which audit objective does the following relate to:

Accounts receivable included in the accounts represent amounts owed by customers at the end of the reporting period.

A

Balances –> Existence

OE4

21
Q

Which audit objective does the following relate to:

Accounts receivable at the end of the reporting period represent legal claims of the entity on customers for payment

A

Balances –> Rights&Obligations

RO1

22
Q

Which audit objective does the following relate to:

All amounts owed by customers at the end of the reporting period are included in accounts receivables in the accounts

A

Balances –> Completeness

C4

23
Q

Which audit objective does the following relate to:

Accounts receivable represent gross claims on the customers at the end of the reporting period and agree with the sum of the accounts receivable subsidiary ledger

A

Balances –> Valuation&Allocation

AV2

24
Q

Which audit objective does the following relate to:

Disclosed revenue events have occurred and pertain to the entity.

A

Presentation and Disclosure –> Occurrence and Rights&Obligations

(PD4)

25
Q

Which audit objective does the following relate to:

All revenue cycle disclosure that should have been included in the financial report have been included

A

Presentation and Disclosure –> Completeness

PD5

26
Q

Which audit objective does the following relate to:

Sales cycle information is appropriately presented and information disclosed is clearly expressed.

A

Presentation and Disclosure –> Classification&Understandability

(PD6)

27
Q

Which audit objective does the following relate to:

Sales cycle information is disclosed accurately and at appropriate amounts.

A

Presentation and Disclosure –> Accuracy&Valuation

PD7

28
Q

What accompanies a returned good?

A

A credit memo

29
Q

What is required before a bad debt can be written off?

A

A write-off authorization memo

30
Q

Pressure on management to overstate revenue, cash & receivables and understate bad debts is an example of ________

A

An inherent risk

31
Q

When testing controls over the occurrence assertion, the auditor should move in what direction along the audit trail?

A

Backwards

32
Q

When testing controls over the completeness assertion, the auditor should move in what direction along the audit trail?

A

Forwards

33
Q

What are three inherent risks the auditor needs to consider when developing the audit plan for sales and receivables?

A
  • Degree of pressure on management
  • Volume of transactions
  • Revenue recognition issues
  • Cash is susceptible to misappropriation
  • Sales adjustments used to conceal theft
34
Q

What is a cost-effective way of identifying areas where there is a potential for misstatement?

A

Analytical review

35
Q

What are the 5 components of an internal control system?

A
  1. Control environment
  2. Risk assessment
  3. Information system
  4. Control activities
  5. Monitoring
36
Q

What are the 5 steps in developing the audit plan?

A
  1. Understanding the entity’s environment and identifying inherent risks
  2. Investigate internal control components
  3. Assess control risk
  4. Perform tests of operating effectiveness
  5. Final assessment of inherent and control risks
37
Q

In the sales and receivables cycle, inherent risk is generally assessed as high for which accounts? And under which assertion?

A

Accounts Receivable
Existence and Valuation & Allocation

Provision for bad debts
Valuation & Allocation

38
Q

What are the substantive procedures which can be carried out on sales and receivables?

A
  1. Initial procedures
  2. Analytical procedures
  3. Tests of details of transactions
  4. Tests of details of balances
  5. Presentation and Disclosure

Advanced Auditing (5 decks)

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