Chapter 9 - Auditing the Revenue Cycle

Question 1

The objective of ______________ is to reduce business-processing costs by identifying and eliminating non-value-added tasks.

Answer 1

reengineering

Question 2

This process involves replacing some traditional procedures with procedures that are innovative and sometimes very different from those that previously existed.

Answer 2

Reengineering

Question 3

The sales process begins in the sales department with the receipt of a ________________ indicating the type and quantity of merchandise being requested.

Answer 3

customer order

Question 4

After preparing the sales order, the sales clerk files one copy of it in the _______________ for future reference.

Answer 4

customer open order file

Question 5

What are the manual procedures in Batch Processing Using Sequential Files?

Answer 5

1. Obtaining and Recording the Customers’ Orders
2. Approving Credit
3. Processing Shipping Orders

Question 6

This document identifies the items of inventory that must be located and picked from the warehouse shelves. It also provides formal authorization
for the warehouse clerk to release custody of the specified assets.

Answer 6

e stock release (also called the picking ticket)

Question 7

The ______________ travels with the goods to the customer to describe the contents of the order. These are either placed inside the shipping container or attached to the outside in a special plastic pouch.

Answer 7

packing slip

Question 8

The _________________ informs the billing department that the customer’s order has been filled and shipped. This document contains such pertinent facts as the date of shipment, items and quantities shipped, the carrier, and freight charges. In some systems, this is a separate document prepared by the shipping clerk

Answer 8

shipping notice

Question 9

What are the automated procedures in Batch Processing Using Sequential Files?

Answer 9

1. Keypunch/Data Entry
2. Edit Run
3. Sort Run
4. AR Update and Billing Run
5. Sort and Inventory Update Runs
6. General Ledger Update Run

Question 10

This process under automated procedures in Batch Processing Using Sequential Files begins with the arrival of batches of shipping notices from the shipping department

Answer 10

Keypunch/Data Entry

Question 11

This process under automated procedures in Batch Processing Using Sequential Files uses an edit program that validates transactions by testing each record for the existence of clerical or logical errors.

Answer 11

Edit Run

Question 12

This process under automated procedures in Batch Processing Using Sequential Files physically arranges the sales order transaction file sequentially by Account Number, which is one of its secondary key

Answer 12

Sort Run

Question 13

This automated procedure creates a new AR-SUB master file that incorporates all the changes to the customer accounts that are affected by transaction records

Answer 13

AR Update and Billing Run

Question 14

This automated procedure used in batch processing reduces the Quantity-on-Hand field in the affected inventory records by the Quantity Sold field in each sales order record. A new inventory master file is created in the process.

Answer 14

inventory update program

Question 15

The _______ separates the checks and remittance advices and prepares a remittance list. These checks and a copy of the remittance list are sent to the cash receipts department.

Answer 15

mailroom

Question 16

Advantages of Real-time Processing

Answer 16

1. Real-time processing greatly shortens the cash cycle of the firm
2. Real-time processing can give a firm a competitive advantage in the marketplace.
3. Manual procedures tend to produce clerical errors, such as incorrect account numbers, invalid inventory numbers, and price–quantity extension miscalculations.
4. Real-time processing reduces the amount of paper documents in a system.

Question 17

These are used extensively in grocery stores, department stores, and other types of retail organizations.

Answer 17

Point-of-Sale (POS) Systems

Question 18

_______________ are designed to ensure that transactions are valid, accurate, and complete.

Answer 18

Input controls

Question 18

______________ are intended to detect transcription errors in transaction data before they are processed.

Answer 18

Input validation controls

Question 19

_______________ are used to examine the contents of a field for the presence of blank spaces.

Answer 19

Missing data checks

Question 20

The audit objectives under this management assertion include:
1. Verify that the accounts receivable balance represents amounts actually owed to the organization at the balance sheet date.
2. Establish that revenue from sales transactions represent goods shipped and services rendered during the period covered by the financial statements.

Answer 20

Existence or Occurrence

Question 21

The audit objectives under this management assertion include:
1. Determine that all amounts owed to the organization at the balance sheet date are reflected in accounts receivable.
2. Verify that all sales for shipped goods, all services rendered, and all returns and allowances for the period are reflected in the financial statements.

Answer 21

Completeness

Question 22

The audit objectives under this management assertion include:
1. Verify that revenue transactions are accurately computed and based on current prices and correct quantities.
2. Ensure that the AR subsidiary ledger, the Sales Invoice file, and the Remittance file are mathematically correct and agree with general ledger accounts.

Answer 22

Accuracy

Question 23

The audit objectives under this management assertion include:
1. Determine that the organization has a legal right to recorded accounts receivable. Customer accounts that have been sold or factored have been removed from the
accounts receivable balance

Answer 23

Rights and Obligations

Question 24

The audit objectives under this management assertion include:
1. Determine that the accounts receivable balance states its net realizable value.
2. Establish that the allocation for uncollectible accounts is appropriate.

Answer 24

Valuation or Allocation

Question 25

The audit objectives under this management assertion include:
1. Verify accounts receivable and revenues reported for the period are properly described and classified in the financial statements.

Answer 25

Presentation and Disclosure

Question 26

These controls are intended to detect transcription errors in transaction data
before they are processed. Since errors detected early are less likely to infiltrate the
accounting records, validation procedures are most effective when they are performed
as close to the source of the transaction as possible

Answer 26

Input validation controls

Question 27

The audit procedures described in these controls provide evidence about the accuracy assertion

Answer 27

Testing Validation Controls

Question 28

These controls are used to manage high volumes of transaction data through a system.
The objective of this control is to reconcile output produced by the system with the
input originally entered into the system

Answer 28

Batch controls

Question 29

These controls provide the auditor with evidence relating to the management assertions of completeness and accuracy.

Answer 29

Tests of batch controls