M4 Auditing the revenue/receipt cycle

M4 SELF-ASSESSMENT

Multiple-Choice Questions

1 Which of the following is not a balance-related audit objective evaluated in the audit of accounts
receivable?
a. Timing
b. Realizable value
c. Completeness
d. Accuracy

2 The two primary classes of transactions in the sales and collection cycle are:
a. sales and sales discounts.
b. sales and cash receipts.
c. sales and sales returns.
d. sales and accounts receivable.

3 The appropriate evidence to be obtained from tests of details must be decided on a(n):
a. efficiency basis.
b. effectiveness basis.
c. audit objectives basis.
d. none of the above.

4 Which of the following is not a balance-related audit objective evaluated in the audit of accounts
receivable?
a. Occurrence
b. Completeness
c. Rights
d. Accuracy

5 Tests of which balance-related audit objective are normally performed first in an audit of the sales and
collection?
a. Accuracy
b. Completeness
c. Rights
d. Detail tie-in

6 For most audits, inherent risk for accounts receivable is moderate or low except for which balance-related
audit objectives?
a. Timing and realizable value.
b. Completeness and existence.
c. Existence and accuracy.
d. Realizable value and cutoff.

7 Which of the following types of receivables would not deserve the special attention of the auditor?
a. Accounts receivables with credit balances.
b. Accounts that have been outstanding for a long time.
c. Receivables from affiliated companies.
d. Each of the above would receive special attention.

8 A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance
outstanding and by the amount of time the component parts have been outstanding, is the:
a. customer list.
 b. aged trial balance.
c. accounts receivable ledger.
d. schedule of accounts receivable.

9 Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure, which
would normally include:

Test-footing the total column

and the columns depicting the Comparing the total of the aged trial balance with
aging the general ledger accounts receivable account
a. Yes Yes
b. No No
c. Yes No
d. No Yes

10 Auditors are often concerned with three aspects of internal controls related to the sales and collection cycle.
Which of the following is not one of those controls?
a. Controls that detect or prevent embezzlements.
b. Controls over cutoff.
c. Controls over acquisitions.
d. Controls related to the allowance for doubtful accounts.

11 Cutoff misstatements occur when:

The auditor fails to obtain the end-

of-year bank statement directly from Subsequent period Current period
the bank, obtaining instead the transactions are transactions are
statement which includes the two recorded in the recorded in the
succeeding weeks current period subsequent period
a. Yes Yes No
b. Yes No Yes
c. No Yes Yes
d. No Yes No

12 Cutoff misstatements occur:

a. either by error or fraud.
b. by error only.
c. by fraud only.
d. randomly without causes related to errors or fraud.

13 Generally accepted accounting principles require that material sales returns and allowances be:
a. recorded in the period when the merchandise is returned.
b. recorded in the period when the credit memo is issued.
c. matched with related sales.
d. recorded as a debit to the sales account.

14 Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on
the communication is correct or incorrect is a:
a. representation letter.
b. negative confirmation.
c. bank confirmation.
d. positive confirmation.

15 A type of positive confirmation known as a blank confirmation:

a. requests the recipient to fill in the amount of the balance.
b. is considered less reliable than the regular positive confirmation.
c. generates as high a response rate as the regular positive confirmation form.
d. is used when the auditor is confirming several small balances.
KEY

1.
easy
a

2.
easy
b

3.
easy
c

4.
easy
a

5.
easy
d

6.
easy
d

7.
easy
d

8.
easy
b
9.
easy
a

10.
easy
c

11.
easy
c

12.
easy
a

13.
easy
c

14.
easy
d

15.
easy
a