Performing Further Procedures, Forming Conclusions, etc

Question 1

What is the presumption in every audit regarding revenue recognition?

Answer 1

Material misstatement due to fraud

Question 2

What is proper segregation of functions in a sales transaction?

Answer 2

-Serially numbered sales order
-Credit approval
-Serially numbered bill of lading
-Serially numbered sales invoice

Question 3

What is proper segregation of function in an AR transaction?

Answer 3

-Reconciling GL and subsidiary ledger
-Elimination upon payment
-Aging schedules
-Serially numbered receiving reports
-Sales discounts

Question 4

Which department is responsible?
1. receive approved sales order from credit department
2. Pull inventory from warehouse and release to shipping
3. perform independent check of goods received
4. bill of lading

Answer 4

Shipping (warehouse)

Question 5

Which department is responsible?
1. Prepare prenumbered sales order
2. perform credit check (authorization)
3. approve credit for returns
4. follow up on old or past due accounts
5. initiate write offs

Answer 5

Credit

Question 6

Which department?
Inquires about credit procedures

Answer 6

Credit

Question 7

Which department?
Observe the creation of a sales orders

Answer 7

Warehouse

Question 8

If you were to inspect a sample of prenumbered shipping documents, what would be a reasonable existence test?

Answer 8

Agree to sales order

Question 9

Which department?
1. Match shipping documents and sales orders before preparing invoice
2. periodically account for all prenumbered shipping docs
3. Prepare prenumbered shipping documents
4. Print sales journal
5. Print sales summary

Answer 9

AR

Question 10

Which department?
1. Receives sales summary
2. perform independent check of invoice batch total
3. review sale account classifications
4. Post to GL

Answer 10

Accounting

Question 11

Which assertion is covered? Revenue
Vouch a sample of sales invoices to shipping documents and approved sales order

Answer 11

Existence

Question 12

Which assertion is covered? Revenue
Trace a sample of shipping documents to sales invoice, sales journal, and AR master file

Answer 12

Completeness

Question 13

Start with source document and locate in accounting records

Answer 13

Tracing

Question 14

What assertion does tracing help with?

Answer 14

Completeness

Question 15

Start with accounting records and locate source document

Answer 15

Vouching

Question 16

What assertion does vouching help with?

Answer 16

Existence

Question 17

Shipping Doc –> Invoice –> Sales Journal

Answer 17

tracing

Question 18

Sales Journal –> Invoice –> Shipping Doc

Answer 18

vouching

Question 19

What assertion? Sales
Trace a sample of shipping documents to the corresponding sales invoice and to the sales journal and AR subsidiary ledger

Answer 19

completeness

Question 20

What assertion? Sales
Compare a sample of sales invoices from shortly before and after year end with shipment dates

Answer 20

Cutoff

Question 21

What assertion? Sales
Compare prices and terms on a sample of sales invoices with authorized price lists and terms of trade to determine whether sales are recorded at the appropriate amount

Answer 21

VAA

Question 22

What assertion? Sales
Vouch a sample of sales transactions from the sales journal to the sales invoice back to the customer order and shipping documents

Answer 22

EO

Question 23

What assertion? Sales
Examine a sample of sales invoices for proper classification into appropriate revenue accounts

Answer 23

understandability

Question 24

What assertion? AR
Obtain an aged trial balance of AR and trace the total to the GL ledger control account

Answer 24

Completeness

Question 25

What assertion? AR
Examine results of confirmations and test the adequacy of the allowance for doubtful accounts

Answer 25

VAA

Question 26

What assertion? AR
Confirm AR

Answer 26

EO

Question 27

What assertion? AR
Review bank confirms and debt agreements for liens and inquire that no AR has been factored or sold

Answer 27

RO