Chapter 9 - Part 1

1.

1 point

A cross-sectional analysis of revenue recorded across multiple sales location is a form of what type of testing?

Trend analysis.

Common size analysis.

Ratio analysis.

Regression analysis.

2.

1 point

Lithgow and Harris, CPAs are performing the audit of WildFlower Grocery Stores. Lithgow and Harris relates annual revenue by sales per square feet and sales per customer. What type of analysis is Lithgow and Harris most likely performing?

Ratio analysis.

Critical analysis.

Reasonableness tests.

Non-statistical analysis.

3.

1 point

Which of the following is the best example of the control objective in the revenue cycle that all transactions are recorded accurately?

Sales are recorded at the invoice price expected to be collected from customers.

Sales orders have sequential numbering.

Recorded sales transactions are evidenced by valid invoices and shipping documents.

Credits to customer accounts are classified as liabilities.

4.

1 point

Which of the following evidences delivery of product to customers sufficient for company recording as revenues?

A check received from the customer.

An agreement to purchase product signed by the customer.

A pick ticket in the warehouse.

A bill of lading and tracking number with the shipper.

5.

1 point

Which of the following is a proper control for the detection of unusual sales transactions recorded in the general ledger?

Electronic authorization prior to posting.

Use of sequentially numbered sales documents.

Random statements to customers.

Review of transactions by upper management or the board.

6.

1 point

The major risk associated with receivables is related to which of the following?

They may be sold to a bank with recourse.

They may be recorded as long-term when in fact they will be realized in the current period.

They will not be realized for the entire amount due.

They are pledged as collateral as disclosed in the footnotes to financial statements.

7.

1 point

In the audit of the revenue of Hiram Manufacturing Company, the auditors obtain a number of shipping documents shortly before year-end and immediately following the year under audit. The auditors compare the documents to the sales journal in order to test which of the following assertions?

Existence of sales.

Presentation and disclosure of receivables.

Cutoff of sales transactions.

Completeness of receivables.

8.

1 point

Which of the following must exist prior to the recognition of revenue by a company from the sale of a product?

The cash is realized on the sale of the product.

A price is discussed based upon the customer's resale of the product.

The customer is given the option to return the product at any time.

The product is adequately delivered to the customer.

9.

1 point

Auditors will examine significant sales returns immediately subsequent to the period under audit in order to do which of the following?

Substantiate cutoff and the occurrence of net sales transactions.

Test the sufficiency of cash balances to cover refunds.

Monitor customer satisfaction for disclosure.

Assess the nature of procedures that will be performed for the next period's audit.

10.

1 point

Calculating the turnover of receivables is often used in testing the sales cycle by auditors when performing which of the following?

Trend analysis.

Ratio analysis.

Reasonableness testing.

Non-statistical sampling.

11.

1 point

A control that may be implemented to ensure all sales that occur are recorded in the general ledger includes which of the following?

Use of prenumbered shipping, invoice and sales documents.

Use of prenumbered statements, inventory lists and credit memos.

Reconciliation of invoices with customer statements.

Use of pre-authorized price lists.

12.

1 point

Credit approval policies are implemented by organizations primarily to accomplish which of the following objectives?

To determine revenue recognition policies.

To ensure customer satisfaction.

To prevent lapping by the accounts receivable department.

To ensure the realization of receivables.

13.

1 point

What evidence is utilized by the auditor for analytical purposes in substantiating the completeness of the allowance for bad debt estimate?

Accounts receivable aging schedule.

Copies of checks received from customers.

Confirmations returned without exception.

Stock prices of customer companies.

14.

1 point

Which of the following is a formal document that conveys responsibility for shipped merchandise to the shipper?

Sales invoice.

Receiving report.

Bill of Lading.

Purchase order.

15.

1 point

Sales transactions should be documented at initiation in order to accomplish which of the following objectives?

To provide the customer a copy of the transaction.

To provide evidence of authorization and recording.

To offer credit to customers.

To generate back orders.

16.

1 point

The auditor of the revenue cycle of ABC Company computes an estimate of ABC's allowance for doubtful accounts and compares it to the estimate provided by ABC's management. The purpose for this procedure is to substantiate which assertion?

Existence of receivables.

Cutoff of receivables.

Valuation of receivables.

Rights to receivables.

17.

1 point

Much of the understanding of revenue transactions for compliance with GAAP can be performed by accomplishing which of the following tasks?

Examining sales contracts and inquiry of management.

Confirming sales with customers.

Discussing the transactions with qualified members of the Financial Accounting Standards Board.

Comparing shipping documents with invoices.

18.

1 point

Fraud related to revenue recognition will most likely be identified by the auditor through which of the following independent situations?

Sales have increased 5% in the current period over the previous period and is consistent with the results of competitors.

Gross margin is equivalent in the current period to previous periods and is below that of the industry.

Sales are higher in the month preceding each quarter end.

The sales of a revolutionary new product are increasing beyond that of the competition in the periods immediately following its introduction.

19.

1 point

A method used by companies to fraudulently inflate revenues includes which of the following?

Use of hidden “side letters” giving the customer an irrevocable right to return the product.

Recording of fictitious sales.

Shipment of product not ordered by customers.

All of the above.

20.

1 point

The significance of the bill of lading is to provide which of the following?

The warehouse personnel with the product that must be shipped to customers.

Invoices to customers for proper collection.

A credit application for customer approval.

Evidence of title transfer of goods to customers.

21.

1 point

The risk of material misstatement due to fraud relating to revenue recognition should be

approached in a manner that is identical to control risk assessment.

given lower priority to the risk of embezzlement.

ordinarily presumed by the auditor.

assumed to have been considered by the FASB.

22.

1 point

The internal audit department at Monument Company receives electronic exceptions reports for all sales transactions entered over $10,000 in total. This process is performed for which purpose?

Drafting financial statements.

Monitoring revenue transactions.

Providing management reports to the controller.

Providing suggestions for operational improvement.

23.

1 point

The auditor traces recorded sales to invoices, sales orders and shipping documents in order to substantiate which assertion?

Cutoff.

Completeness.

Legality.

Occurrence.

24.

1 point

Which of the following processes are included in the revenue cycle?

Shipping products to customers.

Sending disbursements to suppliers.

Issuance of capital stock.

Preparation of a time card.

25.

1 point

In an audit of financial statements, the risk of the high rate of return of products sold includes relates to which of the following?

Sales that are recorded improperly.

An estimate of accrued returns that reduces net income.

A reduction of net sales for an increase to the sales returns and allowance account.

Consignment goods that are returned and forwarded to third parties.