Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Financial Reporting > Chapter 7 - Revenue and Collection Cycle > Flashcards

Chapter 7 - Revenue and Collection Cycle Flashcards

1
Q

4 basic activities of the revenue and collection cycle

A
  1. receive and process customer order
  2. deliver
  3. bill
  4. receive payment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what sparks the recording or revenue and AR?

A

invoice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

3 steps of using the audit risk model

A
  1. set audit risk at the desired level
  2. assess RMM
  3. set detection risk at the significant account and assertion level based on the level of audit risk and RMM
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

when using the audit risk model, we set the detection risk at the significant account and assertion based on..

A

the level of audit risk and RMM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

AS 2110 indicates…

A

The auditor should presume that there is a fraud risk involving improper revenue recognition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

3 inherent risks

A
  1. improper revenue recognition
  2. returns and allowances
  3. collectability of receivable
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

3 types of improper revenue recognition risks

A
  1. cutoff
  2. bill and hold
  3. channel stuffing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

bill and hold refers to…

A

recognizing revenue before delivery

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

channel stuffing refers to..

A

sending more product than the client ordered to inflate sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

sales are typically recorded…

A

net

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

relevant assertions of revenue

A

occurrence, completness, cutoff

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

relevant assertions of accounts receivable

A

existence, completeness, valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

net sales = what assertion?

A

occurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

net AR = what assertion?

A

valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

revenue is recognized when..

A

good and service are transferred to customers for the amount the company expects to be entitled

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

revenue is a ____ process

A

top-down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

auditors want to ensure revenue is only recorded…

A

once

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

sec guidance on revenue recognition says what?

A

pervasive evidence that the revenue exists, delivery, sales price is fixed and determinable, and collectability is reasonably assured

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

5 key revenue and collection cycle key procedures

A
  1. separation of duties
  2. authorization of transactions
  3. access to assets
  4. adequate documentations
  5. undefended check on performance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

4 components of authorization of transactions

A
  1. write offs
  2. EDI transactions
  3. credit checks for approval of sale
  4. pricing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

adequate documents and records includes…

A

prenumbered sales order, shipping documents, and sales involves, remittance advice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

2 components of independent checks on performance

A
  1. AR subsidiary ledger to general ledger
  2. monthly statement to the customer
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

main goal of auditor is to…

A

have enough support to conclude whether the controls activities are operating effectively

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

we perform tests of controls because..

A

we must gain sufficient evidence to conclude if control activity is operating effectively

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

5 test of controls

A
  1. client inquiry
  2. inspections of docs
  3. walk thoughts
  4. re performance
  5. observation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

if controls are not in place or the organization is not performing control effectively, we…

A

use substantive procedures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

substantive procedures are determined to see..

A

if control fails, produce MM in financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

for cash and its occurance assertion, what test of IC do we use?

A

vouching of sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

for cash and its cutoff assertion, what test of IC do we do?

A

trace shipping

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

vouching starts where and ends where?

A

sales invoice, shipping docs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

tracing starts where and ends where?

A

shipping docs, sales invoice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

for the collection cycle, we vouch…

A

sample of invoices to shipping documents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

for the collection cycle, we trace…

A

shipping docs to involves

34
Q

vouching relevent assertion

A

occurance

35
Q

tracing relevent assertion

A

completeness

36
Q

vouching moves in what direction?

A

forward

37
Q

tracing moves in what direction?

A

backwards

38
Q

to record revenue, you need a _____ match

A

three way

39
Q

substantive procedures are designed to…

A

obtain direct evidence about assertions related to a specific balance or transaction

40
Q

controls testing is designed to…

A

collect evidence of the company’s own control activities

41
Q

what assertions are dual purpose?

A

completeness and occurance

42
Q

a decrease in CR ____ substantive procedures on account balances

A

recduces

43
Q

a reduction in substantive procedures results in…

A

audit efficieivences

44
Q

audit efficiency has a ____ sample size

A

small

45
Q

greater substantive procedures means ____ sample size

A

larger

46
Q

a decrease in CR creates a ____ in auditors assessment of the RMM in revenue cycle

A

decreases

47
Q

substantive analytical procedure is used to..

A

estimate a balance than compare

48
Q

a substantive test of detail is used to…

A

directly test the transactions that make up an account or estimate

49
Q

confirmation are a substantive ____

A

test of detail

50
Q

4 steps of auditing accounts receivable

A
  1. test AR aged trial balance
  2. confirm balances
  3. perform analytical procedures
  4. test sales cut off
51
Q

3 categories of analytical procedures for AR

A
  1. sales revenue
  2. ADA BDA
  3. AR
52
Q

analytical procedures for sales revenue

A
  1. comparisons with previous periods
  2. industry comparisons
53
Q

ADA and BDA analytical procedures

A
  1. BDE as a % of sales
  2. ADA as a % of gross receivables
54
Q

AR analytical procedures

A
  1. daily sales AR
  2. AR turnover
55
Q

confirmation primarily verify what assertion?

A

existence

56
Q

accounts to be confirmed are documented through the…

A

aged trial balance

57
Q

4 factors to likely affect the reliability of confirmations

A
  1. previous audit experience
  2. recipient of confirmation
  3. type of info being confirmed
  4. type of confirmation
58
Q

for positive confirmations, a _____ number of accounts are involved

A

small

59
Q

for positive confirmations, the accounts are _____

A

larger

60
Q

for positive confirmations, recipient responds if…

A

the amount is correct or incorrect

61
Q

for negative confirmations, there is a ___ level of RMM

A

LOW

62
Q

for negative confirmation, what risks are low?

A

control risk, RMM

63
Q

blank confirmation are used if…

A

the recipient is likely to return the confirmation without verifying the accuracy of the info

64
Q

only use negative confirmations when…

A

the RMM is low

65
Q

exception of sending confirmations

A
  1. immaterial
  2. sufficient substantive testing
  3. low risk of MM
66
Q

what confirmation are the most reliable?

A

positive and blank

67
Q

recipients are AR confirmation may not report ____ because there is no incentive

A

underestimates

68
Q

if there is not response for positive and blank confirmations..

A

you should follow up and perform analytical procedures

69
Q

for no response for negative confirmation…

A

alternative procedures are not needed

70
Q

sales cutoff procedures are used to…

A

verify that sales and revenue are recorded in the right period

71
Q

for sales cut off procedures, we should examine…

A

shipping documents, involves, and returns shortly after YE

72
Q

4 confirmation alternative procedures

A
  1. vouch subsequent cash collections
  2. examine shipping docs
  3. examine client produced docs
  4. inspect correspondance files
73
Q

vouching subsequent cash collection is usually sufficient evidence of what assertions?

A

existence and valuation

74
Q

4 steps for uncollected accounts

A
  1. inspect files for collectability
  2. recalculate BDA and allowance
  3. verify reasonableness
  4. inspect docs for appropriateness of accounts written off
75
Q

companies reduce CR by having suitable…

A

operation of authority, custody, recording, and periodic reconciliation duties

76
Q

error checking activities of comparing customer order and shipping documents are important for…

A

billing customers the correct prices for the delivered quantities

77
Q

the primary substantive audit procedure is..

A

confirmation

78
Q

confirmations of what accounts are required?

A

loans, AR and NR

79
Q

confirmation of _______ should not be used as the only evidence of the ownership of assets

A

AR, NR, and loans receivable

80
Q

confirmation for AR, NR, and loans receivable should not be used as the only evidence of the…

A

ownership of rights

Financial Reporting (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions