cpa audit review ch 6 review 3

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Joens1313
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cpa audit review ch 6 review 3
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2014-08-10 18:31:12
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cpa audit review ch 6 review 3
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  1. Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor?

    A.Overstating the accounts receivable control account.
    B.Understating the sales journal.
    C.Overstating the accounts receivable subsidiary ledger.
    D.Understating the cash receipts journal.
    B.Understating the sales journal.

    Not recording sales on account in the books of original entry is the most effective way to conceal a subsequent theft of cash receipts. The accounts will be incomplete but balanced, and procedures applied to the accounting records will not detect the defalcation.
    (this multiple choice question has been scrambled)
  2. 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

    A.Occurrence.
    B.Rights and obligations.
    C.Valuation.
    D.Completeness.
    C.Valuation.

    The proper approval of credit provides assurance that the account receivable is collectible. Thus, it is related to the valuation assertion that balances are reported at appropriate amounts, e.g., accounts receivable at net realizable value.
    (this multiple choice question has been scrambled)
  3. Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

    A.The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances.
    B.The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences they report.
    C.The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly.
    D.The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.
    D.The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

    The sequential numbering of documents provides a standard control over transactions. The numerical sequence should be accounted for by an independent party. A major objective is to detect unrecorded and unauthorized transactions. Moreover, comparing shipments with the sales journal also will detect unrecorded transactions.
    (this multiple choice question has been scrambled)
  4. A mail-order retailer has just modified its processing programs to charge each customer the appropriate sales tax. The best approach for detecting whether sales taxes are applied correctly is to

    A.Change the operator input screens to show the computation of sales taxes so the operator can verify the computation.
    B.Move the program code that computes sales taxes to a single program and make this program part of the processing sequence.
    C.Add the program code that will sort orders by area, compute taxes in the aggregate, and compare the amount with the sum of individual taxes charged for each area.
    D.Modify the program code to prompt the operator to ask customers whether their areas have sales taxes and enter the appropriate rates.
    C.Add the program code that will sort orders by area, compute taxes in the aggregate, and compare the amount with the sum of individual taxes charged for each area.

    Sales taxes vary from one jurisdiction to another. Thus, the program should sort orders by area. Verification of the accuracy of the tax charges then can be obtained by calculating the total taxes for each area in two ways: applying the tax rate to total sales or adding the taxes charged on individual sales.
    (this multiple choice question has been scrambled)
  5. A wholesaling firm has a computerized billing system. Because of a clerical error while entering information from the sales order, one of its customers was billed for only three of the four items ordered and received. Which of the following controls could have prevented, or resulted in prompt detection and correction, of this situation?

    A.Periodic comparison of total accounts receivable per accounts receivable master file with total accounts receivable per accounts receivable control account.
    B.Prenumbered shipping documents together with a procedure for follow-up any time there is not a one-to-one relationship between shipping documents and sales invoices.
    C.A completeness check that does not allow a sales invoice to be processed if key fields are blank.
    D.Matching line control counts produced by the computer with predetermined line control counts.
    D.Matching line control counts produced by the computer with predetermined line control counts.

    Detective controls, such as a line control count, identify undesirable events as they occur. A line control count counts individual line items on documents. These counts are compared to predetermined line control counts for each document to detect missing lines.
    (this multiple choice question has been scrambled)
  6. Fact Pattern:  Sales procedures that were encountered during the regular annual audit of Marvel Wholesale Distributing Company are described below.  Customer orders are received by the sales-order department. A clerk computes the dollar amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and returned to the sales-order department. An invoice is prepared in two copies, and the order is filed in the customer order file. The customer copy of the invoice is sent to the billing department and held in the pending file, awaiting notification that the order has been shipped. The shipping copy of the invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order and prepare a three-copy bill of lading:  The original copy is mailed to the customer, the second copy is sent with the shipment, and the other is filed in sequence in the bill of lading file. The invoice shipping copy is sent to the billing department. The billing clerk matches the received shipping copy with the customer copy from the pending file. Both copies of the invoice are priced, extended, and footed. The customer copy is then mailed directly to the customer, and the shipping copy is sent to the accounts receivable clerk. The accounts receivable clerk enters the invoice data in a sales-accounts receivable journal, posts the customer’s account in the subsidiary customers’ accounts ledger, and files the shipping copy in the sales invoice file. The invoices are numbered and filed in sequence.

    To gather audit evidence that uncollected items in Marvel Company’s customers’ accounts represented valid trade receivables, the auditor should select a sample of items from the population represented by the

    A.Customer order file.
    B.Sales invoice file.
    C.Bill of lading file.
    D.Subsidiary customers’ accounts ledger.
    D.Subsidiary customers’ accounts ledger.

    The auditor should sample from records of open accounts receivable to determine if they represent valid assets. The open accounts receivable are maintained in the subsidiary customers’ accounts ledger. Items would be confirmed directly with the debtors
    (this multiple choice question has been scrambled)

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