Introduction:The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 1
The operating effectiveness of the test of control can be identified by the auditor
Introduction: The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 2
The operating effectiveness of the test of control can be identified by the auditor
Introduction: The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 3
The operating effectiveness of the test of control can be identified by the auditor
Introduction: The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 4
The operating effectiveness of the test of control can be identified by the auditor
Introduction: The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 5
The operating effectiveness of the test of control can be identified by the auditor
Introduction: The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 6
The operating effectiveness of the test of control can be identified by the auditor
Introduction: The auditor considers the client’s internal controls that are related to the revenue cycle accounts. Some of the control activities are preventive while other controls are detective.Both the design and implementation of a client’s controls are required to addressing the risks. It ensures that the objectives of internal controls are achieved.
Requirement 7
The operating effectiveness of the test of control can be identified by the auditor
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Chapter 9 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
- Explain why each of the following combinations of tasks should or should not beseparated to achieve adequate internal control.a. Approval of bad debt write-offs and the reconciliation of the accounts receivablesubsidiary ledger and the general ledger control account.b. Distribution of payroll checks to employees and approval of employee time cards.c. Posting of amounts from both the cash receipts and the cash disbursements journalsto the general ledger.d. Writing checks to vendors and posting to the cash account.e. Recording cash receipts in the journal and preparing the bank reconciliation.arrow_forwardSandol Corporation has numerous customers. A customer file is kept on disk storage. Each customer file contains name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow would be to: a. Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations. O b. Request a printout of a sample of account balances so they can be individually checked against the credit limits. c. Request a printout of all account balances so they can be manually checked against the credit limits. O d. Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.arrow_forwardWhich of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?a. Vouchers should be prepared by individuals who are responsible for signing disbursement checks.b. Disbursement vouchers should be approved by at least two responsible management officials.c. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment.d. The official who signs the check should compare the check with the voucher and should stamp “PAID” on the voucher documents.arrow_forward
- The following are typical questions that might appear on an internal control questionnaire for accounts payable. 1. Are monthly statements from vendors reconciled with the accounts payable listing? 2. Are vendors’ invoices matched with receiving reports before they are approved for payment? Describe the purpose of each of the above internal control activities.arrow_forwardDetermine whether each of the following procedures is a test of control or a substantive test. a) The auditor inspects a sample of sales orders to determine if the sales manager has approved the orders. b) The auditor sends a confirmation to the bank to verify the cash balance on hand. c) The auditor attends the inventory count and observes client personnel as they conduct the count. d) The auditor recalculates the amount of interest payable. e) Stand by the payroll time clock to determine whether any employee "punches in" more than one time.arrow_forwardWhich of the following statements is correct? Select one: a. Account receivable turnover is equal to net credit sales divided by average net accounts receivable. b. Buying aged receivables from businesses and then collects the payments directly from the customers is called Allowance for uncollectible accounts. c. Auto generated document numbers is a fraud preventive method which is more efficient than physical controls. d. If the same people are responsible for a series of related accounting activities is called Segregation of Duties.arrow_forward
- The auditor of Ferguson’s, Inc., identified two internal controlsin the sales and collection cycle for testing. In the first control, the computer verifiesthat a planned sale on account will not exceed the customer’s credit limit entered inthe accounts receivable master file. In the second control, the accounts receivable clerkmatches bills of lading, sales invoices, and customer orders before recording in thesales journal. Describe how the presence of general controls over software programsand master file changes affects the extent of audit testing of each of these two internalcontrols.arrow_forwardWhich of the following control activities would best protect against the preparation ofimproper or inaccurate cash disbursements?a. All checks must be signed by an officer designated by the board of directors.b. All signed checks must be reviewed and compared with supporting documentation by thetreasurer before mailing.c. All checks must be sequentially numbered and accounted for by internal auditors.d. All checks must be perforated or otherwise effectively canceled when they are returnedwith the bank statement.arrow_forwardEffective internal control over accounts receivable ensures all of the following except: Select one: O a. All shipments of goods during the period are recorded. O b. That cash collections from customers are promptly deposited. Oc. The sale transaction is recorded for the correct dollar amount. Od. The availability of adequate cash for conducting business operations.arrow_forward
- Which of the following is a preventive control?a. Reconciliation of a bank account.b. Recalculation of a sample of payroll entries by internal auditors.c. Separation of duties between the payroll and personnel departments.d. Detailed fluctuation analysis completed by the CFO for revenue.arrow_forwardWhich control activity is the entity implementing when credit and debt memorandums are prenumbered and accounted for on a daily basis. Select one a. Independent checks on performance b. Physical control over assets and records c. Adequate documents and records d. Proper authorization of transactions and activitiesarrow_forwardV4. Hayden Corporation uses an enterprise resource planning (ERP) system. In their audit of receivables and revenues, the auditors have identified the following data elements in the corporation’s database that may be used for data analytics applications: Customer balance Customer credit limit and credit rating Customer total annual sales Customer purchases by date Customer returns by date Customer name Customer shipping address Required: a. Describe two data analytic applications that might be used to audit the existence of receivables and occurrence of sales. b. Describe one data analytic application that might be used to audit the valuation of receivables.arrow_forward
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