ch 10 Flashcards
Which of the following procedures would most likely not be an internal control procedure designed to reduce the risk of errors in the billing process?
Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.
Tracing shipping documents to prenumbered sales invoices provides evidence that
No duplicate shipments or billings occurred
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?
Treasurer
Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-off?
Employees involved in the credit-granting function are separated from the sales function.
Which of the following controls most likely would reduce the risk of diversion of customer receipts by employees?
A bank lockbox system
An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the
Collection of receivables
Management’s emphasis on meeting projected profit goals most likely would significantly influence an entity’s control environment when
A significant portion of management compensation is represented by stock options
Which of the following procedures would an auditor most likely perform to test controls relating to management’s assertion about the completeness of cash receipts for cash sales at a retail outlet?
Observe the consistency of employees use of over the counter sales computer devices with internal records of such sales
Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?
The write-off of receivables by personnel who receive cash permits misappropriation of cash receipts
Sound internal control procedures dictate that immediately upon receiving checks from customers by mail, a responsible employee should
Prepare a duplicate listing of checks received
An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting
Cash receipts and accounts receivable
An auditor observed that a client mails monthly statements to customers. Subsequently, the auditor reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management’s financial statement assertion(s) of
Existence/occurrence
An auditor suspects that a client’s cashier, who also posts sales and collections to customer accounts in the subsidiary ledger, is lapping cash receipts. Of the following, what is the best procedure to detect this fraud?
Compare dates checks are deposited per bank statement with dates remittance credits are posted
An auditor recomputes and evaluates the adequacy of a client’s allowance for doubtful accounts. This procedure supports management’s assertion of
Valuation/allocation
An auditor discovers that a client’s accounts receivable turnover is substantially lower for the current year than for the prior year. This may indicate that
Victitious credit sales have been recorded during the year.
Which of the following most likely would be detected by an auditor’s review of a client’s sales cutoff?
Unrecorded sales at year-end
An auditor most likely would review an entity’s periodic accounting for the numerical sequence of shipping documents and invoices to support management’s financial statement assertion of
Completeness
Under which of the following circumstances would the use of the blank form of confirmations of accounts receivable most likely be preferable to positive confirmations?
The recipients are likely to sign the confirmations without devoting proper attention to them.
When an auditor fails to receive replies to positive confirmation requests for year-end accounts receivable confirmations, the auditor most likely would
Vouch subsequent collections of the accounts in question to cash receipts records after year-end
To reduce the risks associated with accepting e-mail responses to request for confirmations of accounts receivable, an auditor most likely would
Request senders to mail the original forms directly to the auditor
Confirmation of customer accounts receivable rarely provides reliable evidence about which assertion?
Completeness
For the control activities to be effective, employees maintaining the accounts receivable subsidiary ledger should not also approve:
write-offs of customer accounts.
Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded?
The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
Which of the following internal controls would be most likely to deter the lapping of collections from customers?
segregation of duties between receiving cash and posting the accounts receivable ledger
Smith Corporation has numerous customers. A customer file is maintained and includes a customer record with a name, an address, a credit limit, and an 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 routine in IDEA or an audit data analytic to compare credit limits with account balances and identify any account with a balance exceeding its credit limit.
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this theft and be least likely to be detected by an auditor?
understating the sales journal
If accounts receivable turnover (credit sales/receivables) was 7.1 times last year compared to only 5.6 times in the current year, it is possible that there were:
fictitious sales in the current year.
If the number of days’ sales in accounts receivable (365 days/receivables turnover) decreases significantly, which of the following assertions for accounts receivable most likely is violated?
completeness
Which of the following is most likely to be detected by an auditor’s review of an entity’s sales cutoff?
unrecorded sales for the year
Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:
the auditor cannot infer that all nonrespondents have verified their account information.
An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:
no reply to a positive confirmation request is received.
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:
valuation and allocation.