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Exam 14: Audit of the Sales and Collection Cycle: Tests of Controls

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Question 41

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For each of the following potential misstatements,provide one potential audit test that could be used to detect the misstatement. • sales included in the journals for which there was no shipment • sale recorded more than once • shipments made to nonexistent customers and recorded as sales

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The potential audit tests include the fo...

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Question 42

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Which of the following tests of controls is useful to test the transaction-related audit objective of posting and summarization?

A) Observe whether monthly statements are sent.
B) Observe unrecorded cash at a point in time.
C) Observe whether the accountant reconciles the bank account.
D) Observe endorsement of incoming checks.

E) A) and B)
F) A) and D)

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Question 43

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An effective procedure to test the occurrence/existence objective for sales is to vouch sales journal entries to copies of sales orders,shipping documents,and sales invoices.

One type of shipping document is the ________,which is a written contract between the carrier and the seller of the receipt and shipment of goods.

When designing audit procedures,tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion?

Match seven of the terms for documents and records (a-k)with the descriptions provided below (1-7):

You are an audit manager for Rodgers & Co.and have recently taken on a new client,Manufacturing Company.You are in the initial stages of planning the audit and have decided to start gathering information about the sales/collection cycle of the business.List below the classes of transactions that you need to gather audit evidence for in designing your audit procedures.

Match seven of the terms for documents and records (a-k) with the descriptions provided below (1-7) : -A document prepared to initiate shipment of goods,indicating the description of the merchandise,the quantity shipped,and other relevant data.It is a written contract between the carrier and seller of the receipt and shipment of goods.

The transaction-related audit objectives and the client's methods of controlling misstatements are essentially the same for credit memos as for sales with the exception of two differences.What are the two differences from the auditor's perspective?

The audit procedure referred to as proof of cash receipts is particularly useful to test

A bill of lading is a special type of sales invoice used when goods are shipped interstate.

Which of the following is not an important aspect of billing?

Which of the following is an account that is not affected by the sales and collection cycle?

The extent of tests of controls in audits of nonpublic companies depends on the effectiveness of the controls and the extent to which the auditor believes they can be relied on to reduce control risk.

Which of the following is not a business function within the "Sales" class of transactions?

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction?

A sales invoice is a document that usually indicates credit approval.

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale,cash payment received,any debit or credit memo issued,and the ending balance is the

Realizable value is an essential balance-related audit objective for accounts receivable.

Explain what lapping means,and discuss the internal control deficiency that allows it to occur.Also discuss the procedures the auditor can perform to detect lapping.