Question 1

Which of the following control procedures may prevent the failure to bill customers for some shipments?
A) Each shipment should be supported by a prenumbered sales invoice that is accounted for.
B) Each sales order should be approved by authorized personnel.
C) Sales journal entries should be reconciled to daily sales summaries.
D) Each sales invoice should be supported by a shipping document.

Accepted Answer

The answer of Which of the following control procedures may...

Question 2

To determine that sales are accurately charged, the unit prices on the duplicate sales invoices are normally compared with
A) the original invoices.
B) the amounts recorded in the sales journal for that transaction.
C) the amounts posted to the customer's account in the accounts receivable master file.
D) an approved item master file.

Accepted Answer

The unit prices on duplicate sales invoices are compared with an approved item master file to ensure accuracy. The item master file contains the correct prices for items, making it the appropriate reference for verifying that sales are accurately charged.

Question 3

For each control on which the auditor plans to rely to reduce assessed control risk, he or she must
A) design one or more tests of controls to verify effectiveness.
B) report all weaknesses in the management letter.
C) quantitatively determine the effect on sampling error.
D) ensure that the test applies to several different transaction audit objectives.

Accepted Answer

In order to rely on a control to reduce assessed control risk, the auditor must design tests of controls to verify its effectiveness. Therefore, choice A is the best answer. Reporting weaknesses in the management letter (choice B) is not necessarily related to relying on controls to reduce assessed control risk, and quantitatively determining the effect on sampling error (choice C) is not relevant to this question. While it is important for tests of controls to apply to several different transaction audit objectives (choice D), this is not the best answer because it does not address the specific action that the auditor must take in order to rely on a control to reduce assessed control risk.

Question 4

Which of the following is an example of a key internal control for an online system that would help ensure that recorded sales are for the amount of goods shipped and are accurately billed and recorded?
A) Shipping documents are matched to invoices.
B) Shipping details are automatically used as the invoicing source.
C) Shipping documents are prenumbered and accounted for.
D) Transactions are summarized daily for posting to the general ledger.

Accepted Answer

The answer of Which of the following is an example...

Question 5

What information would be considered semi-permanent as well as transaction information?
A) customer number or code
B) customer credit limit
C) transaction amount
D) current balance outstanding

Accepted Answer

The answer of What information would be considered semi-permanent as...

Question 6

The information systems audit specialist on your audit team has indicated that the general controls over program changes are excellent for all application cycles. What impact does this have on your audit of sales invoice processing?
A) Generalized audit software should be used to select a sample of sales transactions for control testing.
B) Tests of controls should be omitted; only substantive tests may be conducted.
C) There could be problems with the accuracy of calculations for sales taxes and goods and excise taxes.
D) The auditor can place reliance on the program's performance of sales calculations.

Accepted Answer

If the general controls over program changes are excellent, meaning that changes to the sales invoice processing program are properly authorized, tested, and approved, then the auditor can place reliance on the program's performance of sales calculations. This means that substantive tests can be reduced, and the auditor can focus on testing the accuracy of specific transactions rather than testing the system as a whole.

Question 7

Which of the following controls pertains to audit trails in the batch processing of sales transactions?
A) groups of documents are totalled
B) audit trail is available in electronic form
C) the focus is on preventing incorrect transactions
D) remittance advice information is matched to sales invoice numbers

Accepted Answer

The answer of Which of the following controls pertains to...

Question 8

Tamra is performing a test of control consisting of looking at the numerical sequence of credit memos issued by the company. Tamra is performing a block test by looking for any missing number in the sequence. This test will provide evidence of
A) completeness.
B) occurrence and completeness.
C) occurrence and accuracy.
D) accuracy and completeness.

Accepted Answer

The answer of Tamra is performing a test of control...

Question 9

Three presentation and disclosure audit objectives are not affected by assessed control risk for the sales transactions. These are
A) rights and obligations, valuation, and understandability.
B) understandability, valuation, and occurrence.
C) valuation, rights and obligations, and classification.
D) classification, understandability, and rights and obligations.

Accepted Answer

The answer of Three presentation and disclosure audit objectives are...

Question 10

Which of the following presentation and disclosure-related audit objectives does not have a parallel audit objective for both the transaction-related audit objectives and balance-related audit objectives?
A) allocation
B) classification
C) understandability
D) rights and obligations

Accepted Answer

Allocation and classification have parallel objectives in both transaction-related and balance-related audit objectives, while rights and obligations relate to balance-related audit objectives only. Understandability is a presentation and disclosure-related audit objective only and does not have a parallel objective in either transaction-related or balance-related audit objectives.

Question 11

Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?
A) Compare shipping documents with sales invoices.
B) Apply gross profit rates to inventory disposed of during the period.
C) Trace payments received subsequent to the balance sheet date.
D) Send accounts receivable confirmation requests.

Accepted Answer

Comparing shipping documents with sales invoices helps in identifying whether all goods shipped have been invoiced, thus revealing any unrecorded sales at the balance sheet date. This method directly checks for goods that have been shipped but not billed, which is a common cause of unrecorded sales.

Question 12

To test for recorded sales for which there were no actual shipments, the auditor traces from the
A) bill of lading to the sales journal.
B) sales journal to the shipping documents.
C) sales journal to the accounts receivable subsidiary ledger.
D) bill of lading to the supporting customer order and sales order.

Accepted Answer

To test for recorded sales for which there were no actual shipments, the auditor needs to trace from the sales journal to the shipping documents to ensure that the sale was actually shipped. If there are no shipping documents to support the sale, it is possible that the sale was recorded improperly or fraudulently recorded. Tracing from the sales journal to the accounts receivable subsidiary ledger only shows that the sale was recorded in the accounts, but does not provide evidence that the sale actually occurred. Tracing from the bill of lading to the sales journal or the supporting customer order and sales order may not provide sufficient evidence that the sale was actually shipped or occurred.

Question 13

One of the reasons that the auditor considers the type of information system and its functions is to
A) assess whether hardware functioning affects applications.
B) evaluate design effectiveness of internal controls.
C) complete risk assessment by audit assertion for cycles.
D) assess whether programmed controls can be relied upon.

Accepted Answer

The answer of One of the reasons that the auditor...

Question 14

Invoices are prepared using a date equal to the shipping date. This control pertains to which transaction-related audit objective?
A) posting and summarization
B) classification
C) cutoff
D) completeness

Accepted Answer

The control pertains to the cutoff objective which ensures that transactions are recorded in the appropriate accounting period. By using the shipping date as the invoice date, the company ensures that the revenue is recorded in the correct period.

Question 15

When a company uses purchased software packages for its accounting software, such packages normally do not permit the company to change the software package's functionality. This means that the auditor will consider
A) access controls as being poor.
B) program change controls as poor.
C) program change controls as excellent.
D) access controls as being excellent.

Accepted Answer

The answer of When a company uses purchased software packages...

Question 16

A document that is used to describe and authorize additions, changes, or deletion of sales prices or customer data is called a(n)
A) uncollectible account authorization form.
B) journal entry authorization form.
C) master file change form.
D) transaction file change form.

Accepted Answer

A master file change form is used to describe and authorize additions, changes, or deletion of sales prices or customer data. The other options are not related to this type of authorization.

Question 17

Which of the following presentation and disclosure-related audit objectives has a matching transaction-related audit objective, but not a matching balance-related audit objective?
A) accuracy
B) classification
C) occurrence
D) completeness

Accepted Answer

The presentation and disclosure-related audit objective of classification can be linked to the transaction-related audit objective of proper classification in the financial statements. However, it does not have a direct link to any balance-related audit objective. The other options of accuracy, occurrence, and completeness have both transaction-related and balance-related audit objectives.

Question 18

A risk of material misstatement in accounts receivable associated with the accuracy balance-related audit objective is that "sales recorded at the incorrect price result in revenue and accounts receivable that are over- or understated." Which of the following tests of detail of balances would respond to this risk?
A) Select a sample of master file change forms and verify that all sales prices changes were appropriately authorized.
B) Use audit software to match sales invoice price details to authorized prices in the sales price master files.
C) Enquire with management with respect to the procedures used to update the sales price master file.
D) Match shipping details for a sample of invoices to the invoice details on an item by item basis.

Accepted Answer

Using audit software to match sales invoice price details to authorized prices in the sales price master files is the best test of detail of balances to respond to the risk of material misstatement associated with the accuracy balance-related audit objective. This test helps to identify any sales recorded at incorrect prices that result in revenue and accounts receivable being over- or understated, as it compares sales invoice price details to authorized prices in the sales price master files. Choice A is relevant to authorization procedures but is not specific to the risk of material misstatement associated with the accuracy balance-related audit objective. Choice C is a general enquiry that may not provide sufficient evidence to address the specific risk of material misstatement associated with the accuracy balance-related audit objective. Choice D is relevant to accuracy, but it does not address the risk of sales recorded at the incorrect price.

Question 19

When there are problems with program change procedures or with access controls, the auditor may choose to
A) rely less on manual controls since control risk has been increased.
B) not rely on programmed or interdependent application controls.
C) reduce control risk, which reduces the level of substantive testing.
D) use an information technology audit specialist to assess programmed application controls.

Accepted Answer

The answer of When there are problems with program change...

Question 20

Which of the following is an example of a data entry input edit that could be used to improve the accuracy of online data entry of sales orders?
A) matching of customer number to master file
B) automatic posting of sales to the general ledger account
C) reconciliation of the customer master file to accounts receivable
D) daily point-of-sales control totals matched to cash receipts

Accepted Answer

Matching the customer number to a master file during online data entry of sales orders ensures accuracy of the customer information entered. This helps to avoid errors, such as entering an incorrect customer name or address, which can lead to delivery errors or payment processing issues. Automatic posting of sales to the general ledger, reconciliation of the customer master file to accounts receivable, and daily point-of-sales control totals matched to cash receipts are all important controls but are not directly related to improving the accuracy of online data entry of sales orders.

Quiz 12: Audit of the Revenue Cycle

Which of the following control procedures may prevent the failure to bill customers for some shipments?

To determine that sales are accurately charged, the unit prices on the duplicate sales invoices are normally compared with

For each control on which the auditor plans to rely to reduce assessed control risk, he or she must

Which of the following is an example of a key internal control for an online system that would help ensure that recorded sales are for the amount of goods shipped and are accurately billed and recorded?

What information would be considered semi-permanent as well as transaction information?

The information systems audit specialist on your audit team has indicated that the general controls over program changes are excellent for all application cycles. What impact does this have on your audit of sales invoice processing?

Which of the following controls pertains to audit trails in the batch processing of sales transactions?

Tamra is performing a test of control consisting of looking at the numerical sequence of credit memos issued by the company. Tamra is performing a block test by looking for any missing number in the sequence. This test will provide evidence of

Three presentation and disclosure audit objectives are not affected by assessed control risk for the sales transactions. These are

Which of the following presentation and disclosure-related audit objectives does not have a parallel audit objective for both the transaction-related audit objectives and balance-related audit objectives?

Which of the following procedures would ordinarily be expected to best reveal unrecorded sales at the balance sheet date?

To test for recorded sales for which there were no actual shipments, the auditor traces from the

One of the reasons that the auditor considers the type of information system and its functions is to

Invoices are prepared using a date equal to the shipping date. This control pertains to which transaction-related audit objective?

When a company uses purchased software packages for its accounting software, such packages normally do not permit the company to change the software package's functionality. This means that the auditor will consider

A document that is used to describe and authorize additions, changes, or deletion of sales prices or customer data is called a(n)

Which of the following presentation and disclosure-related audit objectives has a matching transaction-related audit objective, but not a matching balance-related audit objective?

When there are problems with program change procedures or with access controls, the auditor may choose to

Which of the following is an example of a data entry input edit that could be used to improve the accuracy of online data entry of sales orders?