True or False 1. The revenue cycle considered by auditors includes the sales process but not cash collections. 2. The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction and collecting the receivable. 3. The shipping department confirms the shipment of goods by completing the packing slip and returning it to the purchasing department.
True or False
1. The revenue cycle considered by auditors includes the sales process but not cash collections.
2. The revenue cycle involves the procedures in generating a sales order, shipping the products, recording the transaction and collecting the receivable.
3. The shipping department confirms the shipment of goods by completing the packing slip and returning it to the purchasing department.
4. Monthly statements provide a detailed list of the customer’s activity for the previous month and a listing of all open items.
5. Invoices are processed, including their mailing to customers, only subsequent to proof of valid delivery to customers.
6. The use of prenumbered sales invoices is the primary control procedure to satisfy the assertion of completeness.
7. A comprehensive chart of accounts and a review of complex or unusual transactions by supervisory personnel are control procedures necessary for proper classification of accounts
8. Formal procedures for approving acceptance of returns that are beyond the warranty period are an appropriate control procedure for identifying and recording returned goods.
9. One of the benefits of establishing a formal credit policy for granting credit is that management does not need to perform monitoring of accounts receivable.
10. Monitoring of the revenue cycle may be accomplished partially through the use of exception reporting
11. Monitoring is one of the five components of the COSO internal control framework.
12. The audit team is required by auditing standards to make an ordinary presumption of the risk of fraud due to revenue misstatements on every engagement.
13. A company that ships a large quantity of its products from its manufacturing plant to a warehouse that it leases until the customer is ready for the product should record the delivery as revenue.
14. The intentional loading of sales at the end of a period to customers that do not need the goods at that time should not be recorded as revenues.
15. All companies attempting to comply with GAAP should refer to the Securities and Exchange Commission for guidance as it supersedes all AICPA, PCAOB, FASB and EITF literature.
16. A tendency for fraud exists when stock options are close to becoming exercised by executives and financial personnel.
17. A red flag that may alert the auditor to fraud in the revenue cycle is a trend of revenue growth that is consistent with industry results.
18. Financial accounting personnel who do not have the proper education, experience and backgrounds may signal the auditor to the risk of financial statement fraud.
19. The auditor of James Corporation should be alert to the risk of material misstatements when James Corporation's
20. Ratio analysis performed by the audit team may include the comparison of gross sales to industry averages and previous periods.
21. The auditor's determination that day's sales in accounts receivable increased from 44 days to 100 days would usually be found through the use of ratio analysis.
22. Edge and Gregg, LLP would most likely discover channel stuffing in the financial statements of a client through the use of trend analysis.
23. Use of reasonableness tests by Bono Mullins, PC will include relationships between financial but not non-financial data.
24 The auditor has determined that the control risk for the existence assertion is low; therefore the auditor may reduce the number of items tested on a substantive basis.
25. Confirmations of bank accounts may help the auditor to determine if material amounts of accounts receivable have been pledged or discounted.
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