Question 1

Which of the following are assertions about the revenue process?
A)existence or occurrence - for both classes of transactions and account balances
B)completeness - for both classes of transactions and account balances
C)valuation and allocation - for classes of transactions and account balances
D)rights and obligations - for classes of transactions and account balances
E)accuracy - for classes of transactions and account balances
F)both A and B
G)both C and D
H)both D and E

Accepted Answer

Existence or occurrence and completeness are both assertions that apply to both classes of transactions and account balances in the revenue process. Valuation and allocation, rights and obligations, and accuracy are also important assertions, but they do not apply to both classes of transactions and account balances.

Question 2

The auditor should plan the audit of the revenue business process with the following presumption
A)that there is a risk of material misstatement due to fraud relating to revenue recognition.
B)that professional skepticism is necessary to find misstatements.
C)that evidence gathering and planning the audit require a questioning mind.
D)that the general environment or tone in the company may allow management to rationalize committing fraud.

Accepted Answer

Revenue recognition is a high-risk area for fraud, and the auditor should plan the audit with the presumption that there is a risk of material misstatement due to fraud relating to revenue recognition. This presumption requires the auditor to pay close attention to the revenue recognition policies and procedures, evaluate the risks associated with them, and perform sufficient testing to detect any material misstatements that may exist.

Question 3

Which of the following are assertions about the revenue process?
A)existence or occurrence - for account balances
B)completeness - for account balances
C)valuation and allocation - for account balances
D)rights and obligations - for account balances
E)accuracy - for classes of transactions and account balances
F)both A and B
G)both C and D

Accepted Answer

The answer of Which of the following are assertions about...

Question 4

Which of the following is not a method to overstate revenues and receivables?
A)recording fictitious sales,recognizing revenue on shipments that were not made.
B)early recognition of sales,recognizing revenue in the current year even though shipment of goods or providing the service occurs in the following year.
C)recognizing cost of goods sold before the goods are invoiced.
D)shipment of a larger quantity of goods than the customer ordered.
E)recognition of revenue based on a swap (exchange)transactions,when the customer and the client exchanged products or services and both parties recognize revenue based on the exchange.

Accepted Answer

Recognizing cost of goods sold before the goods are invoiced can actually result in understating revenues and receivables, not overstating them. The other choices listed are methods used to overstate revenues and receivables.

Question 5

Which of the following are IT controls that the auditor might expect in the revenue business process?
A)The accounting system matches the information on the sales order and the shipping document with the sales invoice before revenue is recognized
B)Sales revenue is recognized based on the date on the invoice document
C)IT system prepares reports listing sales orders that have been shipped,and shipments that have been billed
D)IT system restricts access to individuals authorized to read sales orders,shipping documents,and sales invoices
E)Goods are shipped only to customers with valid sales orders
F)Both A and E
G)Both B and D

Accepted Answer

IT control A ensures that revenue is recognized accurately, and IT control E ensures that goods are only shipped to customers with legitimate orders. Both of these controls are important in the revenue business process. IT controls B and D are not specific to the revenue process and may also apply to other processes within the organization. IT control C is a monitoring control and not a preventive control.

Question 6

Management often uses internal controls in the revenue process because
A)the revenue process is highly susceptible to fraud
B)this makes evidence gathering easier for the auditor
C)of the large number of transactions in the process
D)management is required by SAS 99 to use internal controls

Accepted Answer

The answer of Management often uses internal controls in the...

Question 7

Which of the following are assertions about the revenue process?
A)existence or occurrence - for account balances
B)completeness - for both classes of transactions and account balances
C)valuation and allocation - for classes of transactions and account balances
D)rights and obligations - for classes of transactions and account balances
E)accuracy - for classes of transactions
F)both A and B
G)both C and D
H)Both B and E

Accepted Answer

Completeness and accuracy are key assertions related to the revenue process. Completeness ensures that all revenue transactions have been recorded, while accuracy pertains to the correct recording of these transactions in terms of amount, timing, and classification.

Question 8

Which of the following is not a method to overstate revenues and receivables?
A)recording fictitious sales,recognizing revenue on shipments that were not made.
B)early recognition of sales,recognizing revenue early in the month even though shipment of goods or providing the service occurs late in the month.
C)early shipment of goods,recognizing revenue before the customer requests delivery.
D)shipment of a larger quantity of goods than the customer ordered.
E)recognition of revenue based on a swap (exchange)transactions,when the customer and the client exchanged products or services and both parties recognize revenue based on the exchange.

Accepted Answer

The answer of Which of the following is not a...

Question 9

Which of the following are IT controls that the auditor might expect in the revenue business process?
A)The accounting system matches the information on the sales order and the shipping document with the sales invoice before revenue is recognized
B)Sales revenue is recognized based on the date on the invoice document
C)IT system prepares reports listing sales orders that have been shipped,and shipments that have been billed
D)IT system restricts access to individuals authorized to input sales orders,shipping documents,and sales invoices
E)Goods are shipped only to customers with valid addresses
F)Both A and C
G)Both A and D
H)Both B and E

Accepted Answer

The IT controls that the auditor might expect in the revenue business process are the ones that ensure the accuracy and completeness of revenue recognition as well as prevent unauthorized access to sales order, shipping documents, and sales invoices. The controls mentioned in options A and C help ensure the accuracy and completeness of revenue recognition while the controls in option D help prevent unauthorized access to sales order, shipping documents, and sales invoices. Therefore, the best choice is G, which includes both options A and D. Option B is incorrect because it does not ensure the accuracy and completeness of revenue recognition, and option E is incorrect because it does not relate to IT controls in the revenue business process specifically.

Question 10

Which of the following are IT controls that the auditor might expect in the revenue business process?
A)The accounting system matches the information on the sales order with the sales invoice before revenue is recognized
B)Sales revenue is recognized based on the date on the shipping document
C)IT system prepares reports listing sales orders that have been shipped,and shipments that have been billed
D)IT system restricts access to individuals authorized to input sales orders,shipping documents,and sales invoices
E)Goods are shipped only to customers with valid addresses
F)Both A and C
G)Both B and D
H)Both C and E

Accepted Answer

The answer of Which of the following are IT controls...

Question 11

Because the most likely misstatement in the revenue process is an overstatement misstatement,in many companies the most important assertions are:
A)rights and obligations
B)completeness and accuracy
C)cutoff and classification
D)existence and valuation

Accepted Answer

The most important assertions in the context of revenue recognition, where overstatement is a common risk, are existence (ensuring that recorded revenues actually occurred) and valuation (ensuring that revenues are recorded at the correct amounts). These assertions directly address the risk of revenue overstatement by verifying that revenues exist and are accurately valued.

Question 12

At the end of the audit,the auditor will decide whether the accounts in the revenue business process are presented in accordance with the applicable financial reporting framework.If they are not,the auditor will:
A)issue a "subject to" audit report citing the incorrect accounts
B)issue an adverse report citing a GAAP non-compliance
C)propose audit adjustments to correct the accounts
D)assist the client in making adjustments to correct the accounts

Accepted Answer

The answer of At the end of the audit,the auditor...

Question 13

Which of the following are assertions about the revenue process?
A)existence or occurrence - for both classes of transactions and account balances
B)completeness - account balances
C)valuation and allocation - for account balances
D)rights and obligations - for classes of transactions and account balances
E)accuracy - for classes of transactions and account balances
F)both A and C
G)both B and D

Accepted Answer

Existence or occurrence applies to both classes of transactions and account balances, while valuation and allocation only apply to account balances. Completeness only applies to account balances in the revenue process, and accuracy does not apply specifically to a certain class of transaction or account balance. Finally, rights and obligations apply to both classes of transactions and account balances, making option G incorrect. Thus, the best option is F - both A and C.

Question 14

Which of the following are IT controls that the auditor might expect in the revenue business process?
A)The accounting system matches the information on the sales order with the sales invoice before revenue is recognized
B)Sales revenue is recognized based on the date on the invoice document
C)IT system prepares reports listing sales orders that have not been shipped,and shipments that have not been billed
D)IT system restricts access to individuals authorized to read sales orders,shipping documents,and sales invoices
E)Goods are shipped only to customers with valid sales orders
F)both A and B
G)both C and E

Accepted Answer

The answer of Which of the following are IT controls...

Question 15

Which of the following is not a method to overstate revenues and receivables?
A)failing to record sales revenue at year-end.
B)early recognition of sales,recognizing revenue in the current year even though shipment of goods or providing the service occurs in the following year.
C)early shipment of goods,recognizing revenue before the customer requests delivery.
D)shipment of a larger quantity of goods than the customer ordered.
E)recognition of revenue based on a swap (exchange)transactions,when the customer and the client exchanged products or services and both parties recognize revenue based on the exchange.

Accepted Answer

Failing to record sales revenue at year-end would understate, not overstate, revenues and receivables. The other options describe methods that could be used to artificially inflate revenue figures.

Question 16

According to SAS 99,what is the auditor's responsibility for detecting fraud in an audit?
A)The auditor has the responsibility to prevent or detect all material misstatements.
B)The auditor has the responsibility to test any account that may have a material misstatement.
C)The auditor has a responsibility to perform tests to obtain reasonable assurance that the financial statements are free of material misstatement.
D)The auditor has the responsibility to plan the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

Accepted Answer

The auditor's responsibility is to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.

Question 17

Frauds may be concealed from the auditors by all but one of the following methods:
A)misrepresenting information
B)withholding evidence
C)falsifying documentation
D)accusing another party of the fraud

Accepted Answer

Misrepresenting information, withholding evidence, and falsifying documentation are all methods that can be used to conceal fraud from auditors. However, accusing another party of the fraud is not a method of concealing fraud, but rather a method of shifting the blame for the fraud onto someone else.

Question 18

Which of the following is not a method to overstate revenues and receivables?
A)recording fictitious sales,recognizing revenue on shipments that were not made.
B)early recognition of sales,recognizing revenue in the current year even though shipment of goods or providing the service occurs in the following year.
C)early shipment of goods,recognizing revenue before the customer requests delivery.
D)shipment of a larger quantity of goods than the customer ordered.
E)recognition of revenue based on swap (exchange)transactions,when the customer and the client exchanged different products or different services and both parties recognize revenue based on the exchange.

Accepted Answer

Revenue recognition based on swap transactions is not a method to overstate revenues and receivables.

Question 19

Which of the following are assertions about the revenue process?
A)existence or occurrence - account balances
B)completeness - account balances
C)valuation and allocation - for classes of transactions
D)rights and obligations - for account balances
E)accuracy - for classes of transactions
F)both A and B
G)both C and D
H)Both D and E

Accepted Answer

Accuracy is related to classes of transactions, and rights and obligations pertain to account balances.

Question 20

Which of the following is not a method to overstate revenues and receivables?
A)recording fictitious sales,recognizing revenue on shipments that were not made.
B)early recognition of sales,recognizing revenue in the current year even though shipment of goods or providing the service occurs in the following year.
C)early shipment of goods,recognizing revenue before the customer requests delivery.
D)shipment of a larger quantity of goods by combining customer orders.
E)recognition of revenue based on a swap (exchange)transactions,when the customer and the client exchanged products or services and both parties recognize revenue based on the exchange.

Accepted Answer

The shipment of a larger quantity of goods by combining customer orders may actually result in understating revenues by reducing the number of shipments made, and therefore the revenue recognized. All of the other choices are methods to overstate revenues and receivables.

Quiz 4: Auditing the Revenue Business Process

Which of the following are assertions about the revenue process?

The auditor should plan the audit of the revenue business process with the following presumption

Which of the following are assertions about the revenue process?

Which of the following is not a method to overstate revenues and receivables?

Which of the following are IT controls that the auditor might expect in the revenue business process?

Management often uses internal controls in the revenue process because

Which of the following are assertions about the revenue process?

Which of the following is not a method to overstate revenues and receivables?

Which of the following are IT controls that the auditor might expect in the revenue business process?

Which of the following are IT controls that the auditor might expect in the revenue business process?

Because the most likely misstatement in the revenue process is an overstatement misstatement,in many companies the most important assertions are:

At the end of the audit,the auditor will decide whether the accounts in the revenue business process are presented in accordance with the applicable financial reporting framework.If they are not,the auditor will:

Which of the following are assertions about the revenue process?

Which of the following are IT controls that the auditor might expect in the revenue business process?

Which of the following is not a method to overstate revenues and receivables?

According to SAS 99,what is the auditor's responsibility for detecting fraud in an audit?

Frauds may be concealed from the auditors by all but one of the following methods:

Which of the following is not a method to overstate revenues and receivables?

Which of the following are assertions about the revenue process?

Which of the following is not a method to overstate revenues and receivables?