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Audit Final
Chapter 10 MC
6
Accounting
Undergraduate 3
05/11/2011

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Cards

Term
A manufacturing client received a substantial amount of goods retuned during last month of the fiscal year and the first month after year end. The client recorded the returns when credit memos were issued (usually 6-8 weeks after receipt of the goods). The control procedure that would have led to timelier recording of the goods would include which of the following.

a. prenumbering receving reports, which are separtely identifies for goods returned and serve as a control for issuance of credit memos.
b. Aging schedules of accts rec. prepared at year end by individuals separate from the billing process.
c. a reconciliation of the detailed accts. rec. with the general ledger accts rec. account
d. Prenumbering credit memoranda for which all numbers are periodically accounted.
Definition
A. prenumbering receiving reports, which are separately identified for goods returned and serve as a control for issuance of credit memos.
Term
Which of the following would not represent a factor the auditor would consider when assessing the inherent risk associated with a sales transaction?

a. the existence of terms that specify the right of return or the right to modify the purchase agreement.
b. billing for invoices but agreed-upon shipments of goods at a later date
c. goods billed according to a percentage of completion methodology
d. the nature of the credit authorization process.
Definition
D. the nature of the credit authorization process
Term
For an audit of a nonpublic co., the auditor generally makes a decision not to test the effectiveness of controls in operation when...

a. the preliminary assessment of control risk is at the maximum
b. it is more cost-efficient to directly test ending acct balances than to test control procedures.
c. the auditor believes taht controls are not functioning as describes.
d. all
Definition
d. all
Term
Which of the following should an auditor gain an understanding of during the engagement planning process?

a. internal controls related to revenue recognition
b. revenue-related comp applications
c. key revenue related documents
d. all
Definition
D. ALL
Term
An Auditor performs test of controls in the sales cycle. First, the auditor makes inquiries of co. personnel about the credit granting policies. Then selects a sample of sales transactions and examines documentary evidence of credit approval. this test of controls most like supports which of mgmt's f.s. assertions?

rights and obligations............valuation or allocation
Definition
Valuation or Allocation
Term
To test the completeness of sales, the auditor would select a sample of transaction from the pop represented by which of the following?

a. customer order file
b. open invoice file
c. bill of lading file
d. sales invoice file
Definition
C. Bill of lading file
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