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AUDIT ch 14 LO3-6

1) When designing audit procedures, tracing

of source documents to the customers sub
sidiary ledger and subsequently to the gener
al ledger is done to satisfy what assertion?
A) Valuation
B) Cutoff
C) Completeness
D) Classification

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Terms in this set (35) Original

1) 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?
A) Valuation
B) Cutoff
C) Completeness
D) Classification

2) When assessing risk control, the auditor

must do all of the following except:
A) assess control risk for each objective by
evaluating the controls and deficiencies for
each objective.
B) perform the detailed test of balances.
C) identify the key internal controls and
deficiencies.
D) associate the key controls and
deficiencies with the objectives.

3) When sales invoices are automatically

calculated and posted by a computer, the
auditor may be able to reduce substantive
tests of transactions for which, if any,
assertion?
A) Accuracy
B) Existence
C) Completeness
D) None of the above

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4) In many audits, no substantive tests of

transactions are made for the ________
assertion on the grounds that
understatement of sales is not a concern.
A) accuracy
B) existence
C) completeness
D) none of the above

5) Which one the following procedures

performed for the billing function provides
evidence for the completeness assertion?
A) Making sure that all shipments have been
billed
B) Making sure that no shipment has been
billed more than twice
C) Making sure that each shipment is billed
at the correct amount
D) Making sure that each shipment is billed
to the proper customer

6) When assessing planned control risk for

sales:
A) the key internal controls and deficiencies
for sales will be the same for every
company.
B) the audit objectives for sales will differ
from company to company.
C) a flowchart is required to help assess
control risk for sales.
D) assessing control risk for sales is a highly
subjective decision.

7) The document that the accounting staff

will use as the primary basis for recording
sales transactions and updating the
customers accounts receivable subsidiary
ledger is the:
A) sales order.
B) bill of lading.
C) sales journal.
D) sales invoice.

8) In determining the level of audit

efficiency, once the auditor has identified
the key internal controls and identified any
deficiencies in order to determine the level
of control risk appropriate for a private
company client, it is appropriate to decide
whether:
A) substantive tests can be reduced
sufficiently to justify costs of performing
tests of controls.
B) substantive tests can be increased
sufficiently to justify costs of performing
tests of controls.
C) tests of controls can be increased
sufficiently to justify costs of performing
substantive tests.
D) tests of controls can be reduced
sufficiently to justify costs of performing
substantive tests.

9) Which one of the following statements is

true? In deciding on substantive tests of
transactions:
A) some procedures are commonly
employed on every audit regardless of the
circumstances.
B) all procedures are dependent on the
adequacy of the controls and the results of
the tests of controls.
C) results obtained in the prior year's audit
will not affect the procedures used this year.
D) the materiality of the item will not
influence the choice of procedures used.

10) To test for recorded sales for which there

were no actual shipments, the auditor
vouches 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.

11) An effective procedure to test for

unbilled shipments is to trace from the:
A) sales journal to the shipping documents.
B) shipping documents to the sales journal.
C) sales journal to the accounts receivable
ledger.
D) sales journal to the general ledger sales
account.

12) The auditor traces items from the source

documents to the journals in order to
accumulate audit evidence that will satisfy
the:
A) existence objective.
B) completeness objective.
C) ownership objective.
D) valuation objective.

13) In many audits of sales transactions

substantive tests of transactions can be
reduced in determining the completeness
objective because:
A) understatements of assets and income
are a greater concern than overstatements.
B) overstatements of assets and income are
a greater concern than understatements.
C) it doesn't matter if income is understated
because the savings on income tax offsets
the reduced revenue and net income is
correct.
D) the unrecorded sales cause a reduction
of accounts receivable; therefore, the ratios
of the two financial statements will not be
misleading.

14) To determine that sales are accurately

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

15) Prenumbered documents are intended to

help:

prevent the failure to bill or record sales?

Y/N

prevent duplicate billings or recordings of

sales? Y/N

A-- yes; yes

16) Prenumbered documents will only be

useful for control purposes if:
A) a different numerical sequence is used for
each company.
B) the sequence is accounted for
periodically.
C) employees are allowed to use
documents out of numerical sequence.
D) the same numerical sequence is used
each accounting period.

17) ________ tests are for omitted transactions,

while ________ tests are for nonexistent
transactions.
A) Tracing, vouching
B) Vouching, tracing
C) Verifying, tracking
D) Tracking, verifying

18) Which one of the following best

describes the auditors responsibilities
regarding appropriate authorizations in the
sales/collections cycle?
A) B, C, and D should all be of concern to
the auditor.
B) Credit must be authorized before the
sale.
C) Goods must be shipped after the
authorization.
D) Prices must be authorized.

19) Which one of the following is of the least

concern to the auditor when designing
substantive tests of transactions for the
sales/collection cycle?
A) Sales being included in the journal for
which no shipment was made
B) Sales to related parties, such as officers
and subsidiaries
C) Sales recorded more than once
D) Shipments being made to nonexistent
customers and recorded as sales

20) An auditor needs to determine whether

all customers of an electric utility company
are being billed. The auditor should test
from the:
A) sales register to the accounts receivable
ledger.
B) sales register to the meter department
records.
C) accounts receivable ledger to the sales
register.
D) meter department records to the sales
register.

21) Which one of the following would the

auditor consider to be an incompatible
operation if the cashier receives remittances
from the mailroom?
A) The cashier prepares the daily deposit.
B) The cashier makes the daily deposit at a
local bank.
C) The cashier posts the receipts to the
accounts receivable subsidiary ledger cards.
D) The cashier endorses the checks.

22) Which of the following is the appropriate

point at which the auditor deems
authorization to be critical?

credit granting? Y/N

price authorization? Y/N

shipment of goods? Y/N

A--yes; yes; yes

23) Which of the following would least

concern an auditor regarding the lack of a
specific authorization to conduct the sales
transaction?
A) Granting of credit
B) Shipment of goods
C) Determination of discounts
D) Selling of goods for cash

1) Transaction-related audit objectives are

essentially the same for processing credit
memos as for sales with certain differences.
Which of the following are two key
differences?
A) Risk and emphasis on the completeness
objective.
B) Materiality and emphasis on the accuracy
objective
C) Risk and emphasis on the classification
objective
D) Materiality and emphasis on the
occurrence objective

2) Smith Manufacturing Company's accounts

receivable clerk has a friend who is also a
Smith's customer. The accounts receivable
clerk has issued fictitious credit memos to
his friend for goods supposedly returned.
The most effective procedure for preventing
this activity is to:
A) prenumber and account for all credit
memorandums.
B) require receiving reports that provide
evidence of returned inventory items to
support all credit memorandums before
they are approved.
C) have independent sales and accounts
receivable departments.
D) mail monthly statements to customers.

LO14-5
1) When an employee who is authorized to
make customer entries in the accounts
receivable subsidiary ledger, purposefully
enters cash received into the wrong
customer's account that employee may be
suspected of:
A) kiting.
B) lapping.
C) floating.
D) shorting.

2) An audit procedure that compares the

name, amount, and dates shown on
remittance advices, either paper of
electronic via direct deposit, with cash
receipts journal entries and with related
duplicate deposit slips would be effective in
detecting:
A) kiting.
B) lapping.
C) illicit write-offs of customers as
uncollectible accounts.
D) sales without proper credit authorization.

3) To prevent fraud, management should

deny cash access to anyone responsible for:

opening mail from customers? Y/N

entering sales transactions? Y/N

entering cash receipt transactions? Y/N

C--No; yes; yes

4) The audit procedure referred to as proof

of cash receipts is particularly useful to test:
A) time lags in making deposits.
B) whether all recorded cash receipts have
been deposited in the bank.
C) whether there are cash receipts that have
not been recorded in the journals.
D) the client's reconciliation between cash
receipts and bank deposits.

5) Which of the following test of controls is

useful to test the completeness objective for
cash receipts?
A) Compare shipping documents with sales
records.
B) Observe endorsement of incoming
checks.
C) Examine evidence that the receivable
master file is reconciled to the general
ledger.
D) Observe if the client reconciles the bank
account.

6) When designing tests of controls and

substantive tests of transactions for cash
receipts, it is important to remember that:
A) the test of controls are designed to test
for monetary misstatements.
B) auditors use the same methodology for
designing tests of controls and substantive
tests of transactions for cash receipts as they
use for sales.
C) the tests of controls are not dependent
on the controls the auditor identifies.
D) the tests of controls is not dependent on
whether the company being audited is