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Questions and Answers
What is the primary purpose of sending a legal letter to attorneys during an audit?
What is the primary purpose of sending a legal letter to attorneys during an audit?
Type 1 subsequent events require no adjustments to the financial statements.
Type 1 subsequent events require no adjustments to the financial statements.
False
What is the primary difference between Type 1 and Type 2 subsequent events?
What is the primary difference between Type 1 and Type 2 subsequent events?
Type 1 subsequent events provide evidence of conditions that existed at the date of the financial statements, requiring adjustments, while Type 2 events arise after this date and require disclosure if important.
A legal letter is sent about midway through the completion of the ___.
A legal letter is sent about midway through the completion of the ___.
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Match the following steps to audit subsequent events with their descriptions:
Match the following steps to audit subsequent events with their descriptions:
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Which of the following is NOT a key control over the revenue process?
Which of the following is NOT a key control over the revenue process?
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Authorization of credit sales is a significant risk factor in revenue recognition.
Authorization of credit sales is a significant risk factor in revenue recognition.
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What is the purpose of testing controls within the revenue/AR process?
What is the purpose of testing controls within the revenue/AR process?
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The _____ assertion ensures that all recorded revenues pertain to actual transactions and events.
The _____ assertion ensures that all recorded revenues pertain to actual transactions and events.
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Match the following terms with their descriptions:
Match the following terms with their descriptions:
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Which of the following is a substantive procedure to evaluate revenue recognition?
Which of the following is a substantive procedure to evaluate revenue recognition?
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Cash disbursements should always have an authorized signature.
Cash disbursements should always have an authorized signature.
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What risks are associated with cash receipts management?
What risks are associated with cash receipts management?
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What is the purpose of conducting test counts in inventory management?
What is the purpose of conducting test counts in inventory management?
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Contingent liabilities should only be disclosed when the chance of a future event occurring is remote.
Contingent liabilities should only be disclosed when the chance of a future event occurring is remote.
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What is meant by the term 'consignment inventory'?
What is meant by the term 'consignment inventory'?
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The likelihood of a future event occurring that is likely but not certain is termed as ___ possible.
The likelihood of a future event occurring that is likely but not certain is termed as ___ possible.
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Match each type of contingent liability with its description:
Match each type of contingent liability with its description:
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Which document is essential for testing contingent liabilities?
Which document is essential for testing contingent liabilities?
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Inventory counts should only focus on locations within the entity.
Inventory counts should only focus on locations within the entity.
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What should be done if damaged inventory items are found during an inventory count?
What should be done if damaged inventory items are found during an inventory count?
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When sending legal letters, they should be sent to all attorneys the client paid for ___ services.
When sending legal letters, they should be sent to all attorneys the client paid for ___ services.
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How should consignment contracts or agreements be treated during the inventory count?
How should consignment contracts or agreements be treated during the inventory count?
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What is the purpose of a cutoff bank statement?
What is the purpose of a cutoff bank statement?
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Kiting involves theft of cash before it is recorded in the company's books.
Kiting involves theft of cash before it is recorded in the company's books.
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What is the primary assertion evaluated through cycle counts in inventory management?
What is the primary assertion evaluated through cycle counts in inventory management?
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_____ is a fraud risk where cash is stolen before it is recorded in the company's books.
_____ is a fraud risk where cash is stolen before it is recorded in the company's books.
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Match the inventory control processes with their respective assertions:
Match the inventory control processes with their respective assertions:
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Proof of cash is particularly important when:
Proof of cash is particularly important when:
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Regularly conducting reviews of obsolete inventory supports the valuation assertion.
Regularly conducting reviews of obsolete inventory supports the valuation assertion.
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What is one way auditors can test inventory price?
What is one way auditors can test inventory price?
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Cash is stolen through ___ by manipulating transfers between accounts and recording them improperly.
Cash is stolen through ___ by manipulating transfers between accounts and recording them improperly.
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What is a key function of physical controls over inventory?
What is a key function of physical controls over inventory?
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Which of the following is NOT a part of the final procedures at the end of an audit?
Which of the following is NOT a part of the final procedures at the end of an audit?
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The management representation letter serves as the sole source of evidence for auditing issues.
The management representation letter serves as the sole source of evidence for auditing issues.
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What must management assess regarding going concern during an audit?
What must management assess regarding going concern during an audit?
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The management representation letter must include the client's __________.
The management representation letter must include the client's __________.
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Match the following audit procedures with their purpose:
Match the following audit procedures with their purpose:
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What is the purpose of issuing a management comment letter?
What is the purpose of issuing a management comment letter?
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There is no need to disclose substantial doubt about going concern in financial statements.
There is no need to disclose substantial doubt about going concern in financial statements.
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Which document is indicative of management's confirmation of various issues at the end of the audit process?
Which document is indicative of management's confirmation of various issues at the end of the audit process?
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During an audit, findings of __________ must be communicated to those charged with governance.
During an audit, findings of __________ must be communicated to those charged with governance.
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Which of the following is a procedure involved in analyzing for going concern?
Which of the following is a procedure involved in analyzing for going concern?
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Study Notes
Chapter 11: Revenue and Accounts Receivable Process
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The exam covers multiple choice, matching, and written questions.
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The exam is closed-book and administered on Canvas using a lockdown browser.
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The revenue/AR process is broken down into steps for audit planning.
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Step 1: Initial Audit Planning
- Understand the client's revenue process.
- Understand the entity and its environment.
- Conduct analytical procedures.
- Assess inherent risk associated with revenue process assertions.
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Step 2: Understand Internal Controls and Determine Preliminary Audit Strategy
- Understand client controls (entity level controls and flow of transactions).
- Identify key controls (WCGW and related controls for credit sales, cash receipts, and adjustments).
- Evaluate internal controls, perform tests of controls, and decide if additional testing is needed.
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Step 3: Test Controls Based on Preliminary Audit Strategy
- Perform tests of controls at interim date.
- Determine if controls are effective.
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Step 4: Determine and Perform Substantive Procedures
- Apply substantive procedures if internal control tests were effective.
- If the controls are not effective, perform substantive procedures.
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Step 1: Initial Audit Planning
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Step 5: Draw a Conclusion about Fair Presentation
- Evaluate transactions, balances, and disclosures for presentation.
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Key controls over the revenue and cash receipts process include initiating credit sales, delivering goods, and recording sales. Initiating credit sales should be done using a limited number of individuals and all changes should be reviewed by management.
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Software matches customer orders with the customer master file and the amount of sales orders with credit authorization. Sales orders must match goods pulled, and software generates necessary documentation.
Chapter 12: Purchases and Accounts Payable Process
- The basic flow of the purchases/payables process is similar to the revenue cycle.
- Controls for purchases, cash disbursement, purchase adjustments, and accounts payable are critical.
- Auditors should evaluate internal controls for these areas.
- Assertions for purchases and cash disbursements include:
- Existence (all recorded transactions exist)
- Completeness (all transactions that should have been recorded are recorded)
- Authorization (transactions authorized appropriately)
- Accuracy (data is accurate)
- Cutoff (transactions recorded in the correct accounting period)
- Classification (recorded transactions are in appropriate accounts)
- Presentation (details are clearly explained)
Chapter 13: Inventory
- Key assertions for inventory include existence, valuation, completeness, rights and obligations.
- Cycle counts (physical counts of inventory), comparing physical counts to perpetual records, obtaining purchase documents, and recalculating average inventory costs are substantive procedures used to audit inventory.
- The auditor plans and implements the inventory count.
Chapter 14: Contingent Liabilities
- Contingent liabilities are existing conditions or circumstances with uncertainty about loss.
- Auditors test for them, and if reasonably possible the loss should be disclosed in the financial statements.
- Examples include pending litigation, threatened litigation, etc.
Chapter 15: Audit Reports
- Different types of audit reports exist for private and public companies
- Standard unmodified, unqualified, or unqualified with emphasis of matter.
- Elements of the standard audit report (PCAOB and ASB)
- Modifications to the standard report includes additional paragraphs or explanatory language.
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Description
This quiz focuses on Chapter 11, the Revenue and Accounts Receivable Process, which is crucial for understanding audit planning related to revenues. It covers key steps such as initial audit planning, internal controls, and testing strategies. Prepare to answer various question types including multiple choice and written responses.
