ACCT 5200 FINAL QUESTIONS & ANSWERS
Revenue recognition criteria is outlined in - Answer -Staff Accounting Bulletin 101
For revenue to be recognized: some persuasive ______________________________
has to exist, delivery has occurred or services have been __________, the sellers price
to the buyer is fixed or ________________, collectability is
_______________________. - Answer -evidence of an arrangement, rendered,
determinable, reasonably assured
Fraud Risks - Answer -side agreements, channel stuffing, related party transactions, bill
and hold sales
Major accounts for revenue recognition - Answer -Sales revenue, AR, cash receipts
the likelihood that in the absence of internal controls, an error or fraud will enter the
accounting information system - Answer -Inherent risk
Inherent risk is assessed as high unless the combination of ______________________
justify a lower assessment - Answer -inherent risk factors
factors justifying a lower inherent risk assessment include: - Answer -low motivation to
materially misstate for external parties, stable business environment and routine
transactions, no complex or contentious revenue recognition issues, no material prior
year misstatements
the likelihood that an error or fraud will not be caught by the clients internal control -
Answer -control risk
risk is assessed at the _______ level - Answer -assertion
a mix of procedures must be selected to support ____________ risk assessment for
each assertion - Answer -detection
the likelihood that an error or fraud will not be caught by an auditors procedures -
Answer -detection risk
focuses on the sale of goods and services to customers. For all entities, the revenue
and purchasing processes represent the two major business processes that affect the
financial statements - Answer -revenue process
revenue must be recognized in conformity with GAAP in order for an auditor to issue an
- Answer -unqualified opinion
,revenues measured by the exchange value of _______________ provided - Answer -
goods/services
FASB No. 5 states that revenue must be either - Answer -realized/realizable or earned
revenue is realized when - Answer -a product or service is exchanged for cash, a
promise to pay cash or other assets that can be converted into cash
Revenue is earned when - Answer -an entity has substantially completed the earning
process (product delivered and service provided)
auditors should be alert for the following activities that are fraud risks: - Answer -side
agreements and channel stuffing
arrangements that are used to alter the terms and conditions of recorded sales in order
to entice customers to accept delivery of goods and services - Answer -side
agreements
marketing practice that suppliers sometimes use to boost sales by inducing distributors
to buy substantially more inventory than they can promptly resell - Answer -channel
stuffing (trade loading)
For most entities, the revenue recognition process occurs over a short period of time
(days or weeks), but in certain industries, such as construction or defense, the revenue
recognition process ______________________ - Answer -may extend over a period of
years.
Three types of transactions typically processed through the revenue process - Answer -
the sale of goods/rendering of a service for cash or credit, the receipt of cash from the
customer, return of goods by the customer for credit/cash
contains the details of the type and quantity of products/services ordered by the
customer - Answer -customer sales order
form that investigates the creditworthiness of the customer - Answer -credit approval
form
the report of all customer orders for which processing has not been completed -
Answer -open order report
should be prepared anytime goods are shipped to a customer. generally serves as a bill
of lading - Answer -shipping document
used to bill a customer - Answer -sales invoice
used to record necessary information for each sales transaction - Answer -sales journal
, contains details of all sales, cash receipts and credit memorandum transactions -
Answer -customer statement
used to monitor collection of receivables and ensure details of the AR subsidiary ledger
agree with general ledger control account - Answer -Aged Trial Balance of AR
mailed with customer bill and returned with customers payment for goods or services -
Answer -remittance advice
contains columns for debiting cash, crediting AR and crediting other accounts such as
scrap sales or interest income - Answer -cash receipts journal
authorizes the write off of an uncollectible acount - Answer -write off authorization
initial function of revenue process is entry of new sales order into the system - Answer -
order entry
must determine that the customer is able to pay for the goods/services - Answer -credit
authorization
credit authorization function also has responsibility for monitoring _____________ -
Answer -customer payments
collection function must ensure that all cash collections are properly identified and
promptly deposited intact at the bank - Answer -cash receipts
responsible for ensuring that all billings, adjustments and cash collections are properly
recorded - Answer -AR
to ensure that all revenues, collections, etc. are properly summarized in the accounts -
Answer -General ledger
segregation of duties is important in the revenue process because of the potential for -
Answer -theft and fraud
four specific inherent risk factors that may affect the revenue process are - Answer -
industry related factors, the complexity of revenue recognition issues, the difficulty of
auditing transactions/account balances, misstatements detected in prior audits
for some entities, the recognition of revenue may involve - Answer -complex
calculations
the presence of misstatements in previous audits is a good indicator that misstatements
are likely to be ________________________________ - Answer -present during the
current audit
Revenue recognition criteria is outlined in - Answer -Staff Accounting Bulletin 101
For revenue to be recognized: some persuasive ______________________________
has to exist, delivery has occurred or services have been __________, the sellers price
to the buyer is fixed or ________________, collectability is
_______________________. - Answer -evidence of an arrangement, rendered,
determinable, reasonably assured
Fraud Risks - Answer -side agreements, channel stuffing, related party transactions, bill
and hold sales
Major accounts for revenue recognition - Answer -Sales revenue, AR, cash receipts
the likelihood that in the absence of internal controls, an error or fraud will enter the
accounting information system - Answer -Inherent risk
Inherent risk is assessed as high unless the combination of ______________________
justify a lower assessment - Answer -inherent risk factors
factors justifying a lower inherent risk assessment include: - Answer -low motivation to
materially misstate for external parties, stable business environment and routine
transactions, no complex or contentious revenue recognition issues, no material prior
year misstatements
the likelihood that an error or fraud will not be caught by the clients internal control -
Answer -control risk
risk is assessed at the _______ level - Answer -assertion
a mix of procedures must be selected to support ____________ risk assessment for
each assertion - Answer -detection
the likelihood that an error or fraud will not be caught by an auditors procedures -
Answer -detection risk
focuses on the sale of goods and services to customers. For all entities, the revenue
and purchasing processes represent the two major business processes that affect the
financial statements - Answer -revenue process
revenue must be recognized in conformity with GAAP in order for an auditor to issue an
- Answer -unqualified opinion
,revenues measured by the exchange value of _______________ provided - Answer -
goods/services
FASB No. 5 states that revenue must be either - Answer -realized/realizable or earned
revenue is realized when - Answer -a product or service is exchanged for cash, a
promise to pay cash or other assets that can be converted into cash
Revenue is earned when - Answer -an entity has substantially completed the earning
process (product delivered and service provided)
auditors should be alert for the following activities that are fraud risks: - Answer -side
agreements and channel stuffing
arrangements that are used to alter the terms and conditions of recorded sales in order
to entice customers to accept delivery of goods and services - Answer -side
agreements
marketing practice that suppliers sometimes use to boost sales by inducing distributors
to buy substantially more inventory than they can promptly resell - Answer -channel
stuffing (trade loading)
For most entities, the revenue recognition process occurs over a short period of time
(days or weeks), but in certain industries, such as construction or defense, the revenue
recognition process ______________________ - Answer -may extend over a period of
years.
Three types of transactions typically processed through the revenue process - Answer -
the sale of goods/rendering of a service for cash or credit, the receipt of cash from the
customer, return of goods by the customer for credit/cash
contains the details of the type and quantity of products/services ordered by the
customer - Answer -customer sales order
form that investigates the creditworthiness of the customer - Answer -credit approval
form
the report of all customer orders for which processing has not been completed -
Answer -open order report
should be prepared anytime goods are shipped to a customer. generally serves as a bill
of lading - Answer -shipping document
used to bill a customer - Answer -sales invoice
used to record necessary information for each sales transaction - Answer -sales journal
, contains details of all sales, cash receipts and credit memorandum transactions -
Answer -customer statement
used to monitor collection of receivables and ensure details of the AR subsidiary ledger
agree with general ledger control account - Answer -Aged Trial Balance of AR
mailed with customer bill and returned with customers payment for goods or services -
Answer -remittance advice
contains columns for debiting cash, crediting AR and crediting other accounts such as
scrap sales or interest income - Answer -cash receipts journal
authorizes the write off of an uncollectible acount - Answer -write off authorization
initial function of revenue process is entry of new sales order into the system - Answer -
order entry
must determine that the customer is able to pay for the goods/services - Answer -credit
authorization
credit authorization function also has responsibility for monitoring _____________ -
Answer -customer payments
collection function must ensure that all cash collections are properly identified and
promptly deposited intact at the bank - Answer -cash receipts
responsible for ensuring that all billings, adjustments and cash collections are properly
recorded - Answer -AR
to ensure that all revenues, collections, etc. are properly summarized in the accounts -
Answer -General ledger
segregation of duties is important in the revenue process because of the potential for -
Answer -theft and fraud
four specific inherent risk factors that may affect the revenue process are - Answer -
industry related factors, the complexity of revenue recognition issues, the difficulty of
auditing transactions/account balances, misstatements detected in prior audits
for some entities, the recognition of revenue may involve - Answer -complex
calculations
the presence of misstatements in previous audits is a good indicator that misstatements
are likely to be ________________________________ - Answer -present during the
current audit
