Substantive Audit Testing: Revenue Cycle
1. Substantive Audit Testing: Revenue Cycle
2. MULTIPLE CHOICE:
3. 1. Which of the following might be detected by an auditor's review of the client's sales cut-off?
4. a. Excessive goods returned for credit.
5. b. Unrecorded sales discounts. c. Lapping of year end accounts receivable. d. Inflated sales for the year.
6. ANSWER: D
7. 2. Which of the following forms of evidence represents the most competent evidence that a receivable actually exists?
8. a. A positive confirmation. b. A sales invoice. c. A receiving report. d. A bill of lading.
9. ANSWER: A
10. 3. During the process of confirming receivables as of December 31, 2002, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, 2003." The auditor would most likely 11. a. Determine whether there were any changes in the account between January 1 and January 9, 2003.
12. b. Determine whether a customary trade discount was taken by the customer. 13. c. Reconfirm the zero balance as of January 10, 2003.
14. d. Verify that the amount was received.
15. ANSWER: D
16. 4. Which of the following analytical audit findings would most likely indicate a possible problem?
17. a. A material decrease in the receivables turnover. b. A material increase in inventory turnover. c. A material decrease in days' sales outstanding. d. A material increase in the acid test ratio.
18. ANSWER: A
19. 5. When the objective of the auditor is to evaluate the appropriateness of adjustments to sales, the best available evidence would normally be 20. a. Oral evidence obtained by discussing adjustment-related procedures with controller personnel.
21. b. Analytical evidence obtained by comparing sales adjustments to gross sales for a period of time.
22. c. Physical evidence obtained by inspection of goods returned for credit. 23. d. Documentary evidence obtained by inspecting documents supporting entries to adjustment accounts.
24. ANSWER: D
25. 6. An auditor will most likely detect kiting by
26. a. Completing an analysis of interbank transfers and obtaining cutoff bank statements directly from all
28. b. Reconciling all bank accounts as of year end.
29. c. Reconciling Bank A as of year end and Bank B at the end of the first week following year end.
30. d. Reconciling Bank B as of year end and Bank A at the end of the first week following year end.
31. ANSWER: A
32. 7. An auditor should perform alternative procedures to substantiate the existence of accounts receivable when
33. a. No reply to a positive confirmation request is received. b. No reply to a negative confirmation request is received. c. Collectability of the receivables is in doubt. d. Pledging of the receivables is probable.
34. ANSWER: A
35. 8. Two types of accounts receivable confirmation requests are 36. used in practice-positive and negative. Negative
37. confirmations may be used
38. a. When internal control over sales and accounts
39. receivable is weak.
40. b. Only where the auditor has assessed inherent risk and control risk as low, the auditor believes that the recipient will review the request, and a large number of small balances are involved.
41. c. Only where internal control over sales and accounts receivable is strong. 42. d. Only where the auditor has assessed inherent risk and control risk as low, the auditor believes that the recipient will review the request, and a small number of large balances are involved.
43. ANSWER: B
44. 9. When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to
46. a. Theft. b. Irregular endorsement. c. Substitution. d. Deposits in transit. 47. ANSWER: C
48. 10. An auditor would primarily rely upon which type of evidential matter when evaluating the collectability of accounts receivable?
49. a. Positive confirmation. b. Negative confirmation. c. Aged accounts receivable listing. d. Management's...
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