Auditing Chapter 10 Test bank questions

In general, revenue is recognized when - correct answer an entity satisfies a performance obligation According to FASB ASC 606, which of the following is not part of the five-step approach for revenue recognition? - correct answer Determine whether the buyer will take a discount. What is channel stuffing? - correct answer A company induces distributors to buy substantially more inventory than they can promptly resell. At which point in an ordinary sales transaction of a wholesaling business would a lack of specific authorization be of least concern to the auditor? - correct answer Selling of goods for cash. Tracing copies of sales invoices to shipping documents will provide evidence that all - correct answer billed sales were shipped. An auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's assertion about account balances of - correct answer accuracy, valuation and allocation Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? A) Scan the sales journal for sequential and unusual entries. B) Examine shipping documents for matching sales invoices. C) Compare the accounts receivable ledger to daily sales summaries. D) Inspect unused sales invoices for consecutive prenumbering. - correct answer Examine shipping documents for matching sales invoices. Tracing shipping documents to prenumbered sales invoices provides evidence that: - correct answer shipments to customers were properly billed. 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 - correct answer cutoff. Which of the following is not an inherent risk factor for the revenue process? - correct answer The entity does not follow its stated policies for sales order approvals. 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? A) Tracing audited cash receipts to accounts receivable credits. B) Selecting accounts to be confirmed on a random basis. C) Examining sales invoices for completeness, consistency between different items, valid conditions, and reasonable amounts. D) Resolving differences reported by customers on confirmation requests. - correct answer Resolving differences reported by customers on confirmation requests. In auditing accounts receivable, the negative form of confirmation request most likely would be used when: - correct answer the combined assessed level of inherent and control risk relative to accounts receivable is low. 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? A) The positive confirmation form must always be used to confirm all balances regardless of size. B) A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances. C) A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables. D) The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory. - correct answer A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances. In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following? - correct answer The credit manager's opinion. Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to: - correct answer evaluate the allowance for doubtful accounts.