Auditing Cash Receipts: Designing Tests

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What is the primary focus of the auditor when auditing cash receipts?

Verification of the existence of recorded sales
Identification of material weaknesses in internal control (correct)
Detection of misstatements in cash receipts
Evaluation of the design of internal controls

What is the purpose of tests of controls in auditing cash receipts?

To evaluate the operating effectiveness of internal controls (correct)
To verify the existence of recorded sales
To detect material misstatements in cash receipts
To identify weaknesses in internal control that increase the likelihood of fraud

What is the relationship between the methodology for designing tests of controls and substantive tests of transactions for cash receipts and sales?

The same methodology is used for both cash receipts and sales (correct)
The methodologies are similar but not identical
The methodology for sales is used as a guide for cash receipts
The methodologies are completely different

What is the objective of substantive tests of transactions for cash receipts?

To detect material misstatements in cash receipts (A) Signup and view all the answers

What is the first step in designing tests of controls and substantive tests of transactions for cash receipts?

Determine the key internal controls for each objective (D) Signup and view all the answers

What is the purpose of identifying weaknesses in internal control when auditing cash receipts?

To assess control risk (D) Signup and view all the answers

What is the primary concern of the auditor when verifying the existence of recorded sales?

That sales are included in the journals for which no shipment was made (D) Signup and view all the answers

Which of the following is a common procedure used in designing substantive tests of transactions?

Reviewing reports for unusual or incorrect items (C) Signup and view all the answers

What is the purpose of tests of controls in auditing?

To evaluate the effectiveness of internal controls (A) Signup and view all the answers

What is a common weakness in internal controls that may lead to fictitious sales?

Inadequate segregation of duties (A) Signup and view all the answers

Which of the following is a consideration when designing substantive tests of transactions for sales?

All of the above (D) Signup and view all the answers

What is the primary objective of substantive tests of transactions for sales?

To detect material misstatements in sales transactions (C) Signup and view all the answers

What procedure would an auditor perform to verify the existence of recorded sales when there is no shipment?

Trace selected entries from the sales journal to make sure that related copies of the shipping and other supporting documents exist (B) Signup and view all the answers

What is a potential indicator of a control weakness in the sales recording process?

The person recording sales is also in a position to authorize shipments (D) Signup and view all the answers

What is the purpose of tracing a credit in the A/R master file to its source?

To identify potential fictitious sales transactions (D) Signup and view all the answers

What is the main purpose of performing a substantive test for completeness?

To verify the existence of recorded sales (C) Signup and view all the answers

What is the procedure for testing for unbilled shipments?

Tracing selected shipping documents from a file in the shipping department to related duplicate sales invoices and the sales journal (D) Signup and view all the answers

What is the main reason why substantive tests of transactions are emphasized when controls are inadequate?

Because the client does not perform independent internal tracing from shipping documents to the sales journal (C) Signup and view all the answers