Auditors review items in the pending order file for evidence of the

Chapter 7 Revenue And Collection

Which of the following is NOT a basic activity in the revenue and collection cycle for

a typical manufacturing company?

Purchasing raw materials

Prenumbered documents are important in testing the ___assertion and

the ___assertion.

Completeness; occurrence

The form the carrier signs to verify goods are shipped is a[n] ______.

Bill of lading

Access to accounts receivable records gives an individual ______,

recording responsibility

authorization

Auditors review items in the pending order file for evidence of the ______ of recorded

sales and accounts receivable.

Completeness

There is no such thing as a typical revenue and collection cycle.

True

Prenumbered documents are an example of an internal control.

True

For current status, including up-to-date credit limit information, auditors may test a

sample of the ___ file.

Customer; master

A description of the goods being shipped as well as the quantity shipped is found on

the ______.

Packing slip

Systems may automatically produce customer invoices, but billings will be incorrect

if the ___ master file is incorrect.

Price list

Physical protection of accounts receivable files is an important facet of control.

True

It is important to maintain an up-to-date customer master file to ensure ______.

credit limits are appropriate

files are accurate

When vouching invoices and sales journal entries to price lists, the auditor must be

sure to have the most up-to-date price list available.

False

The sales detail [journal] file can be checked for ______.

sales recorded before shipment

fictitious sales

Chapter 7 NotesA blank form confirmation may result in a lower response rate, and may produce betterevidence than a positive confirmation.According to accounting standards, to be recognized, revenue must be realized orrealizable and earned.When the auditor evaluates the reasonableness of the allowance for doubtful accounts,valuation is a high risk assertion.Substantive procedures are always performed in the revenue cycle.Sending confirmations to customers to substantiate the existence and rights andobligations assertions of accounts receivable is an example of a substantive test of details.When considering relevant assertions and obtaining evidence about accounts receivableand other assets, auditors must emphasize the existence assertion.Confirmations is considered a required auditing procedure.Confirmations do not provide strong evidence of valuation.A customer is asked to respond whether the balance is correct or incorrect on a positiveconfirmation.A customer is asked to respond only if something is wrong with the account balancewhen a negative confirmation is used.Positive confirmation: Individual balances are relatively large. Accounts are in dispute.Negative confirmation: Risk of material misstatement is low. A large number of smallbalances exist. Customers are expected to consider the confirmations properly.If a confirmation exception cannot be resolved, the auditor should determine the cause.The most effective alternative procedure to confirmations to ensure existence isexamining subsequent cash receipts.When an auditor receives an oral response to a confirmation; A written response stillneeds to be requested. Alternative audit procedures may be warranted.

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Tags

Financial audit, invoice