Chapter 10: Auditing the Revenue Process

Question 1

Analytical procedures

Answer 1

Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data

Question 2

Application controls

Answer 2

Controls that apply to the processing of specific computer applications and are part of the computer programs used in the accounting system

Question 3

Assertions

Answer 3

Expressed or implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures

Question 4

Exception

Answer 4

A response that indicates a difference between information requested to be confirmed, or contained in the entity’s records, and information provided by the confirming party

Question 5

General controls

Answer 5

Controls that relate to the overall information processing environment and have a pervasive effect on the entity’s computer operations

Question 6

Lapping

Answer 6

The process of covering a cash shortage by applying cash from one customer’s accounts receivable against another customer’s accounts receivabl

Question 7

Negative confirmation request

Answer 7

A request that the confirming party respond directly to the auditor only if the confirming party disagrees with the information provided in the request

Question 8

Nonresponse

Answer 8

A failure of the confirming part to respond, or fully respond, to a positive confirmation request of a confirmation request returned undelivered

Question 9

Positive confirmation request

Answer 9

A request that the confirming party respond directly to the auditor by providing the requested information or indicating whether the confirming party agrees or disagrees with the information in the request

Question 10

Reliance strategy

Answer 10

The auditor’s decision to rely on the entity’s controls, test those controls, and reduce the direct tests of the financial statement accounts

Question 11

Substantive tests of transactions

Answer 11

Tests to detect error or fraud in individual transactions

Question 12

Test of controls

Answer 12

Audit procedures performed to test the operating effectiveness of controls in presenting or detecting material misstatements at the relevant assertion level

Question 13

Tests of details or account balances and disclosures

Answer 13

Substantive tests that concentrate on the details of amounts contained in an account balance and in disclosures

Question 14

Walkthrough

Answer 14

A transaction being traced by an auditor from origination through the entity’s information system until it is reflected in the entity’s financial reports. It encompasses the entire process of initiating, authorizing, recording, processing, and reporting individual transactions and controls for each of the significant processes identified