Chapter 10 – Auditing the Revenue Process
45. A CPA auditing an electric utility wishes to determine whether all customers are being
billed. The CPA’s best direction of test is from the
46. To determine whether the system of internal control operated effectively to minimize errors
of failure to invoice a shipment, the auditor would select a sample of transactions from the
population represented by the
Chapter 10 – Auditing the Revenue Process
47. Which of the following procedures would ordinarily be expected to best reveal improper
cutoff of sales at the balance sheet date?
48. If the objective of a test of details is to detect the overstatement of sales, the auditor should
Chapter 10 – Auditing the Revenue Process
49. Which of the following misstatements is not related to the completeness assertion for
revenue?
50. Which of the following is a test of controls for the transaction assertion of completeness for
revenue?
Chapter 10 – Auditing the Revenue Process
51. To achieve good internal control, which department should perform the activities of
matching shipping documents with sales orders and preparing daily sales summaries?
52. An auditor confirms a representative number of open accounts receivable as of December
31 and investigates respondents’ exceptions and comments. By this procedure, the auditor
would be most likely to learn of which of the following?
Chapter 10 – Auditing the Revenue Process
53. An auditor most likely would limit substantive tests of sales transactions when control risk
is assessed as low for the existence or occurrence assertion concerning sales transactions and
the auditor has already gathered evidence supporting
54. Cooper, CPA is auditing the financial statements of a small rural municipality. The
receivable balances represent residents’ delinquent real estate taxes. Internal control at the
municipality is weak. To determine the existence of the accounts receivable balances at the
balance sheet date, Cooper would most likely
Chapter 10 – Auditing the Revenue Process
55. Auditors sometimes use ratios as audit evidence. For example, an unexplained increase in
the ratio of gross profit to sales may suggest which of the following possibilities?
56. Which of the following might be detected by an auditor’s review of the client’s sales cutoff?
Chapter 10 – Auditing the Revenue Process
57. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general
ledger control account as of October 31. By this procedure, the auditor would be most likely to
learn of which of the following?
58. Once a CPA has determined that accounts receivable has increased because of slow
collection in a “tight money” environment, the CPA would be likely to
Chapter 10 – Auditing the Revenue Process
59. Which of the following is not an issue related to the valuation of accounts receivable?
60. In the confirmation of accounts receivable, the auditor would most likely
Chapter 10 – Auditing the Revenue Process
61. Confirmation is most likely to be a relevant form of evidence with regard to assertions about
accounts receivable when the auditor has concerns about the receivables’
62. In which of the following circumstances would the use of the negative form of accounts
receivable confirmation most likely be justified?
Chapter 10 – Auditing the Revenue Process
63. To reduce the risks associated with accepting e-mail responses to requests for confirmation
of accounts receivable, an auditor most likely would
64. The confirmation of customers’ accounts receivable rarely provides reliable evidence about
the completeness assertion because
Chapter 10 – Auditing the Revenue Process
65. Which of the following statements would an auditor most likely add to the negative form of
confirmations of accounts receivable to encourage timely consideration by the recipient?
66. Some firms that dispose of only a small part of their total output by consignment shipments
fail to make any distinction between consignment shipments and regular sales. Which of the
following would suggest that goods have been shipped on consignment?
Chapter 10 – Auditing the Revenue Process
67. Which of the following most likely would be the result of ineffective internal control
policies and procedures in the revenue process?
68. Upon receipt of customers’ checks in the mailroom, a responsible employee should prepare
a listing of remittances that is forwarded to the cashier. A copy of the listing should be sent to
the
Chapter 10 – Auditing the Revenue Process
69. Mill Company uses a batch processing method to process its sales transactions. Data on
Mill’s sales transaction tapes are electronically sorted by customer number and are subjected to
programmed edit checks in preparing its invoices, sales journals, and updated customer account
balances. One of the direct outputs of the creation of these tapes most likely would be a
70. Which of the following sets of duties would ordinarily be considered basically incompatible
in terms of effective internal control?
Chapter 10 – Auditing the Revenue Process
71. During a review of a small business entity’s internal control system, the auditor discovered
that the accounts receivable clerk approves credit memos and has access to cash. Which of the
following controls would be most effective in offsetting this weakness?
72. Which of the following procedures most likely would not be an internal control activity
designed to reduce the risk of errors in the billing process?
Chapter 10 – Auditing the Revenue Process
73. Smith is engaged in the audit of a cable TV firm that services a rural community. All
receivable balances are small, customers are billed monthly, and internal control is effective. To
determine the existence of the accounts receivable balances at the balance sheet date, Smith
would most likely
74. Which of the following most likely would give the most assurance concerning the valuation