Chapter 7 Gleim Flashcards
an auditor testing a policy of obtaining credit approval before shipping goods to customers is a test of which assertion?
accuracy, valuation, allocation
what is not an internal control activity designed to reduce the risk of errors in the billing process?
reconciling the control totals for sales invoices with the AR subledger
which control would be effective in offsetting the AR clerk approving credit memos and having access to cash?
the owner reviewing credit memos after they are recorded
which fraud activity would most likely be perpetrated due to lack of IC in the revenue cycle?
the write-off of AR by personnel who receive cash permits the misappropriation of cash
which control would most likely ensure that all credit sales transactions of an entity are recorded (completeness)?
billing department supervisor matches prenumbered shipping documents with entries in the sales journal
an auditors tests of controls for completeness of the revenue cycle usually include determining whether
an invoice is prepared for each shipping document
sound IC principles dictate that immediately upon receiving checks from customers, a responsible employee should
prepare a duplicate listing of checks received
accounts receivable is a _______ function and should not ______ transactions
recording, authorize transactions
proper authorization of write-offs of uncollectible accounts should be approved in which department?
CFO
to test overstatements of sales, the auditor should compare transactions in the
accounting records with source documents
which procedure would an auditor do for year-end AR confirmations if the auditor did not receive replies to second requests?
inspect shipping records documenting the merchandise sold to customers
which would give the most assurance concerning valuation about AR?
assessing the allowance for uncollectible accounts for reasonableness
the AR turnover ratio increasing significantly over a two-year period could indicate:
the company is more aggressively collecting customer accounts
a CPAs best direction of test in determining whether an electric company is billing all customers is:
comparing the meter department records to the billing register
in a recession, the auditor would focus increased attention to the ________ account
allowance for doubtful accounts
the most effective audit procedure for determining the collectability of an AR is the
review of subsequent cash collections
collectibility pertains to the _______ assertion
valuation
the three-way match of earned revenue involves which documents?
customer sales order, evidence of shipment, customer invoice
which assertion relates to ensuring revenues are only recorded when duties are fulfilled?
existence/occurrence
which assertion relates to ensuring revenues are only recorded once?
completeness and cutoff
channel stuffing
sending products to distributors for the sole purpose of recognizing revenue, without any real customer order
when controls are not operating effectively, RMM _______, DR _________, and substantive testing ________
increases, decreases, increases
to test controls in the revenue cycle, auditors perform dual-direction testing to test for which two assertions?
completeness and occurrence
dual-purpose procedure
qualify as both substantive procedures and tests of controls
