final exam

Question 1

SAB 101 Revenue Recognition Criteria? (4 )

Answer 1

Persuasive evidence of an arrangement exists

delivery has occurred or services have been rendered

seller’s price to the buy is fixed/ determinable

collectability is reasonably assure

Question 2

fraud risks in rev. recognition

Answer 2

• side agreements
• channel stuffing
• related party transactions
• bill and hold sales

Question 3

channel stuffing?

Answer 3

“trade loading” when suppliers induce distrubtors to buy substantially more than they can promptly sell

Question 4

bill and hold sales

Answer 4

sales where the customer agrees to purchase the goods but the seller retains phys. possession until the customer requests shipments– does not qualify as a sale because delivery has not occurred

Question 5

3 types of trnsaction typically processed through the revenue process

Answer 5

• sale of goods or rendering of a service for cash or credit
• receipt of cash from the customer in payment for the goods or services
• return of goods by the customer for credit or cash

Question 6

Acct’s affected in SALES transactions

Answer 6

• Trade A/R
• Sales
• Allowance for uncoll. accounts.
• Bad Debt Expense

Question 7

Accts affected in CR Transactions

Answer 7

• Cash
• Trade A/r
• Cash Discounts

Question 8

Accts affected in Sales RETURNS and Allowances

Answer 8

• sales returns
• sales allowances
• trade A/R

Question 9

Open Order Report

Answer 9

– report of all customer orders for which processing has NOT been completed

Question 10

Remittance Advice

Answer 10

• authorizes the write-off of an uncollectible A/R. Final authorization is generally received from the treasurer

Question 11

inherent risk assessment (4 risk factors)

Answer 11

• industry-related
• complexity and contentiousness fo revenue recogntion issues
• difficulty of auditing transactions/ acct. balances
• misstatements deteced in prior audits

Question 12

control risk assessment (3 steps)

Answer 12

• understand and coument revenue process based on a reliance strategy
• plan and perform tests of controls on revenue transactions
• set and document the control risk for the revenue process

Question 13

auditor activities to document internal control?? (4)

Answer 13

• procedure manuals
• narrative descriptions
• internal control questionaires
• flow charts

Question 14

6 ASSERTIONS!! (OCAACC)

Answer 14

Occurence

Completeness

Authorization

Accuracy

Cutoff

Classification

Question 15

key segregations

Answer 15

credit & billing

shipping & billing

A/R and G/L

CR and A/R