Chapter 10 – Auditing the Revenue Process
1. Revenue is realized when a product or service is exchanged for cash or a promise to pay cash
or other assets that can be converted into cash.
2. Revenue must be realized (or realizable) and earned to be recognized.
3. Channel stuffing is an improper practice used to boost sales by inducing distributors to buy
more inventory than they can promptly resell.
Chapter 10 – Auditing the Revenue Process
4. The return of vendor purchases is a part of the revenue process.
5. The revenue process affects numerous accounts in the financial statements.
6. A remittance advice is used to track purchases.
7. Order entry is the initial function in the revenue cycle.
Chapter 10 – Auditing the Revenue Process
8. Credit authorization is used to determine if a customer is able to pay for goods.
9. A negative confirmation requests that customers respond whether they agree or not with the
amount due to the client stated in the confirmation.
10. A positive confirmation requests that customers respond whether they agree or not with the
amount due to the client stated in the confirmation.
Chapter 10 – Auditing the Revenue Process
11. In general, revenue is recognized when
12. According to the SEC’s SAB No. 101, which of the following is not necessary for revenue
recognition?
Chapter 10 – Auditing the Revenue Process
13. What is channel stuffing?
14. Tracing bills of lading to sales invoices provides evidence that
Chapter 10 – Auditing the Revenue Process
15. At which point in an ordinary sales transaction of a wholesaling business would a lack of
16. Tracing copies of sales invoices to shipping documents will provide evidence that all
Chapter 10 – Auditing the Revenue Process
17. An auditor tests an entity’s policy of obtaining credit approval before shipping goods to
customers in support of management’s financial statement assertion of
18. Which of the following tests of controls most likely would help assure an auditor that goods
shipped are properly billed?
Chapter 10 – Auditing the Revenue Process
19. Tracing shipping documents to prenumbered sales invoices provides evidence that
20. Tests designed to detect credit sales made after the end of the year that have been recorded
in the current year provide assurance about management’s assertion of
Chapter 10 – Auditing the Revenue Process
21. When evaluating internal control of an entity that processes revenue transactions on the
Internet, an auditor would be most concerned about the
22. Which of the following is not an inherent risk factor for the revenue process?
23. Data Corporation has just computerized its billing and accounts receivable record keeping.
You want to make maximum use of the new computer in your audit of Data Corporation. Which
of the following audit techniques could not be performed through a computer program?
Chapter 10 – Auditing the Revenue Process
24. In auditing accounts receivable, the negative form of confirmation request most likely
would be used when
Chapter 10 – Auditing the Revenue Process
25. Auditors may use positive and/or negative forms of confirmation requests for accounts
receivable. Which of the following statements is true regarding the auditor’s use of
confirmations?
26. In determining the adequacy of the allowance for uncollectible accounts, the least reliance
should be placed upon which of the following?
Chapter 10 – Auditing the Revenue Process
28. Audit documents often include a client-prepared aged trial balance of accounts receivable
as of the balance sheet date. This aging is used by the auditor to
Chapter 10 – Auditing the Revenue Process
29. In connection with the examination of financial statements by an independent auditor, the
client suggests that members of the internal audit staff be utilized to minimize audit costs.
Which of the following tasks could most appropriately be delegated to the internal audit staff?
30. Which of the following is the best argument against the use of negative accounts receivable
confirmations?
Chapter 10 – Auditing the Revenue Process
31. An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts
receivable most likely is to obtain evidence concerning management’s assertions about
32. Which of the following controls most likely would be effective in offsetting the tendency of
sales personnel to maximize sales volume at the expense of high bad debt write-offs?
Chapter 10 – Auditing the Revenue Process
33. Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate
control activities over the invoicing function allow goods to be shipped that are not invoiced.
The inadequate control activities could cause an
34. Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate
control activities over the invoicing function allow goods to be invoiced that are not shipped.
The inadequate control activities could cause an
Chapter 10 – Auditing the Revenue Process
35. Immediately upon receipt of cash, a responsible employee should
36. For the most effective internal control, monthly bank statements should be received directly
Chapter 10 – Auditing the Revenue Process
37. Which one of the following would the auditor consider to be an incompatible operation if
the cashier receives remittances from the mailroom?
38. Which is not a key segregation of duties for the revenue process? Different parties should
Chapter 10 – Auditing the Revenue Process
39. All of the following are important controls over credit memos except:
40. An auditor would consider a cashier’s job description to contain compatible duties if the
cashier receives remittances from the mailroom and also
Chapter 10 – Auditing the Revenue Process
41. Auditors are more concerned with the occurrence assertion for revenues than the
completeness assertion because
42. An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is performed to assess the assertion of
Chapter 10 – Auditing the Revenue Process
43. Which of the following control activities may prevent the failure to bill customers for some
shipments?
44. Which of the following internal control activities most likely would ensure that all billed
sales are correctly posted to the accounts receivable ledger?