Auditing An International Approach 7th Edition By Bewley – Test Bank

c11 Key

1. Which of the following lists outlines the best order for a typical sequence of activities in the revenue and collection cycle?

A. Delivering goods, billing customers, credit granting, collection activity.

B. Customer ordering, delivering goods, billing customer, cash receipts.

C. Customer ordering, delivering goods, credit granting, collection activity.

D. Credit granting, billing customers, delivering goods, cash receipts.

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #1
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-02 Assertion-Based Risk Assessment for Revenues, Receivables, and Receipts
Topic: 11-03 Revenues, Receivables, and Receipts Process: Typical Activities

2. Typical source documents involved in the revenue and collection cycle would be ________.

A. cash disbursements

B. shipping documents

C. inventory listings

D. vendor invoices

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #2
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-02 Assertion-Based Risk Assessment for Revenues, Receivables, and Receipts
Topic: 11-03 Revenues, Receivables, and Receipts Process: Typical Activities

3. When the credit manager decides a customer’s account is considered to be uncollectible, the decision should be reviewed by the controller to ________.

A. ensure the bad debts account is within budget

B. ensure the credit manager has not written off the account as a favour to a friend

C. begin a lawsuit to collect the money

D. inform the police

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Easy
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #3
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-02 Assertion-Based Risk Assessment for Revenues, Receivables, and Receipts
Topic: 11-03 Revenues, Receivables, and Receipts Process: Typical Activities

4. Upon receipt of customer cheques in the mailroom, a responsible employee should prepare a remittance listing and forward it to the cashier. A copy of the listing should be sent to the ________.

A. internal auditor to investigate the listing for unusual transactions

B. controller to compare the listing with the monthly bank statement

C. accounts receivable bookkeeper to update the subsidiary accounts receivable records

D. entity’s bank to compare the listing with the cashier’s deposit slip

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #4
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-02 Assertion-Based Risk Assessment for Revenues, Receivables, and Receipts
Topic: 11-03 Revenues, Receivables, and Receipts Process: Typical Activities

5. Which of the following internal control procedures is most likely to ensure that all billed sales are correctly posted to the accounts receivable subsidiary ledger?

A. Daily sales summaries are compared to daily postings to the accounts receivable subsidiary ledger.

B. Each sales invoice is supported by a pre-numbered shipping document.

C. The accounts receivable subsidiary ledger is reconciled daily to the control account in the general ledger.

D. Each shipment on credit is supported by a pre-numbered sales invoice.

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #5
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-02 Assertion-Based Risk Assessment for Revenues, Receivables, and Receipts
Topic: 11-03 Revenues, Receivables, and Receipts Process: Typical Activities

6. In evaluating the adequacy of the allowance for doubtful accounts, an auditor is most likely to review the aging of receivables as evidence and support for management’s financial statement assertion of ________.

A. existence or occurrence

B. valuation or allocation

C. completeness

D. rights and obligations

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Difficult
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #6
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-02 Assertion-Based Risk Assessment for Revenues, Receivables, and Receipts
Topic: 11-03 Revenues, Receivables, and Receipts Process: Typical Activities

7. The most frequent reconciliation is the comparison of the sum of customers’ unpaid balances with the accounts receivable control account total. Usually, this reconciliation is done with a(n) ________.

A. aged trial balance

B. capital asset sub-ledger

C. bank statement

D. customer statement

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 11-01 Describe the revenues; receivables; and receipts process; including typical risks; transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 11 #7
Topic: 11-01 Understanding the Revenues, Receivables, and Receipts Process
Topic: 11-04 Revenues and Accounts Receivable: Processing and Controls
Topic: 11-05 Cash Receipts and Cash Balances: Processing and Controls
Topic: 11-06 Audit Evidence in Management Reports and Data Files

8. Which of the following procedures would best lead to an understanding of the transaction flow in the revenue and collection cycle?

A. Inquiry.

B. Observation.

C. Confirmations.

D. Inspecting a sample of documents.

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Easy
Learning Objective: 11-02 Describe the auditor’s control risk assessment and control tests for auditing control over customer credit approval; delivery; accounts receivable; cash receipts; and bank statements.
Smieliauskas – Chapter 11 #8
Topic: 11-07 Control Risk Assessment
Topic: 11-08 General Control Considerations
Topic: 11-09 Control Tests

9. Which of the following is most likely to be detected by an auditor’s review of a client’s sales cut off?

A. Shipments lacking sales invoices and shipping documents.

B. Excessive write-off of accounts receivable.

C. Unrecorded sales at year-end.

D. Lapping of year-end accounts receivable.

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 11-02 Describe the auditor’s control risk assessment and control tests for auditing control over customer credit approval; delivery; accounts receivable; cash receipts; and bank statements.
Smieliauskas – Chapter 11 #9
Topic: 11-07 Control Risk Assessment
Topic: 11-08 General Control Considerations
Topic: 11-09 Control Tests

10. Which of the following audit procedures is an auditor most likely to perform in testing controls related to management’s assertion about the completeness of sales?

A. Verify that extensions and footings on the entity’s sales invoices and monthly customer statements have been recomputed.

B. Inspect the entity’s reports of pre-numbered shipping documents that have not been recorded in the sales journal.

C. Compare the invoiced prices on pre-numbered sales invoices to the entity’s authorized price list.

D. Inquire about the entity.