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After the auditor has prepared a flowchart of internal control for sales and cash receipts transactions and evaluated the
design of the system, the auditor would perform tests of controls on all control procedures
A. Documented in the flowchart.
B. Considered to be deficiencies that might allow errors to enter the accounting system.
C. Considered to be strengths that the auditor plans to rely on in assessing control risk.
D. That would aid in preventing irregularities.


To determine whether internal control effectively minimized errors of failure to bill a customer
for a shipment, the auditor would select a sample of transactions from the population represented
by the
Customer order file.
Shipping records file.
Subsidiary customer accounts ledger.
Sales invoice.


Which of the following would the auditor consider to be an incompatible operation if the cashier
receives remittances from the mailroom?
The cashier posts the receipts to the accounts receivable subsidiary ledger.
The cashier makes the daily deposit at a local bank.
The cashier prepares the daily deposit.
The cashier endorses the checks.
The least crucial element of control over cash is
Separation of cash record keeping from custody of cash.
Preparation of the monthly bank reconciliation.
Batch processing of checks.
Separation of cash receipts from cash disbursements.


Which of the following is not a universal rule for achieving control over cash?
Separate the cash-handling and record-keeping functions.
Decentralize the receiving of cash as much as possible.
Deposit each day's cash receipts by the end of the day.
Have bank reconciliations performed by employees who do not handle cash.


At which point in an ordinary sales transaction of a wholesaling business is a lack of specific

authorization of least concern to the auditor in the conduct of an audit?
Granting of credit.
Shipment of goods.
Determination of discounts.
Selling of goods for cash.


To verify that all sales transactions have been recorded, a test of transactions should be completed on a representative
sample drawn from
Entries in the sales journal.
The billing clerk's file of sales orders.
A file of duplicate copies of sales invoices for which all prenumbered forms in the series have been accounted.
The shipping clerk's file of duplicate copies of shipping documents.


The negative form of accounts receivable confirmation request is particularly useful except when
Control procedures surrounding accounts receivable are considered to be effective.
A large number of small balances are involved.
The auditor has reason to believe the persons receiving the requests are likely to give them consideration.
Individual account balances are relatively large.


Which of the following is not a primary objective of the auditor in tests of accounts receivable?
Determine the approximate realizable value.
Determine the adequacy of internal controls.
Establish the validity of the receivables.
Determine the approximate time of collectibility of the receivables.


Tracing copies of sales invoices to shipping documents will provide evidence that all
Shipments to customers were recorded as receivables.
Billed sales were shipped.
Debits to the subsidiary accounts receivable ledger are for sales shipped.
Shipments to customers were billed.

11. To gather audit evidence about the proper credit approval of sales, the auditor would select a sample of documents from the
population represented by the
a. Customer order file.
b. Bill of lading file.
c. Subsidiary customers' accounts ledger.
d. Sales invoice file.


Which of the following functions is common to the revenue/receipt cycle?

Resources are acquired from vendors and employees in exchange for obligations to pay.
Resources are sold to customers in exchange for promises for future payments.
Resources are acquired from employees in exchange for obligations to pay.
Capital funds are received from investors and creditors.


Which of the following is not a common activity of the revenue/receipt cycle?

Order entry.
Inventory control.
Cash collection.

14. To achieve control when there is no Billing Department, the billing function should be performed by the
a. Accounting Department.
Sales Department.
c. Shipping Department.
d. Credit and Collection Department.
15. The person who opens the mail commonly prepares a remittance advice when a customer fails to return one with a
payment. Consequently, mail should be opened by the:
Credit manager.
Sales manager.
Accounts receivable clerk.
16. Which of the following control procedures will likely prevent the concealment of a cash shortage that was perpetrated by
improperly writing off a trade account receivable?
Write-offs must be approved by a responsible officer after reviewing Credit Department recommendations and supporting
Write-offs must be supported by an aging schedule showing that only receivables months overdue have been written off.
Write-offs must be approved by the cashier.
Write-offs must be authorized by field sales representatives.

Which of the following would best protect a company that wishes to prevent lapping?
Segregate duties so that accounting has no access to incoming mail.
Segregate duties so that no employee has access both to checks from customers and to currency from daily cash receipts.
Have customers send payments directly to the company's bank.
Request that customers checks be made payable to the company and be addressed to the treasurer.

18. During the review of a small owner-managed company's internal controls, the auditor discovers that the accounts receivable
clerk approves credit memos and has access to cash. Which of the following controls would offset this deficiency?
owner reviews errors in billings to customers and postings to subsidiary records.
controller receives the monthly bank statement directly and reconciles the checking accounts.
owner reviews credit memos after they are recorded.
controller reconciles the detailed receivables records to the general ledger.




19. Defective merchandise returned by customers should be presented to

Inventory control personnel.
Sales personnel.
Purchasing personnel.
Receiving personnel.

Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting?
Review composition of authenticated deposit slips.
Review subsequent bank statements and canceled checks received directly from the banks.
Prepare a schedule of bank transfers from the client's books.
Prepare year-end bank reconciliations.

21. Which of the following financial statement assertions is not addressed by the confirmation of accounts receivable?
a. Existence.
b. Presentation and disclosure.
c. Rights.
d. Valuation.
22. When auditing the allowance for uncollectible accounts, the least reliance should be placed on which of the following?
a. The credit manager's opinion.
b. An aging of past due accounts.
c. Collection experience of the client's collection agency.
d. Ratios that show the past relationship of the allowance to net credit sales.
23. In determining the existence of accounts receivable, which of the following would the auditor consider most reliable?
a. Documents that supports the accounts receivable balance.

b. Credits to accounts receivable from the cash receipts book after the close of business at year-end.
c. Direct telephone communication between auditor and debtor.
d. Confirmation replies received directly from customers.
24. Customers with substantial due balances have failed to reply after second requests had been mailed to them directly. Which of
the following audit procedures is most appropriate?
a. Examine shipping documents.
b. Review cash collections during the year being audited.
c. Intensify the study of internal controls for receivables.
d. Increase the balance in the accounts receivable allowance account.
25. A client erroneously recorded a large purchase twice. Which of the following control procedures would be most likely to detect
this error in a timely and efficient manner?
a. Footing the purchases journal.
b. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
c. Tracing totals from the purchases journal to the ledger accounts.
d. Sending written quarterly confirmations to all vendors.
26. An internal control questionnaire indicates that an approved receiving report must accompany every check request for payment
of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?
a. Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving
b. Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving
c. Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks.
d. Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.
27. The

accounts payable department receives the purchase order form to accomplish all of the following except
Compare invoice price to purchase order price.
Ensure that the purchase had been properly authorized.
Ensure that the party requesting the goods had received the goods.
Compare quantity ordered to quantity purchased.

28. For

effective internal control purposes, which of the following individuals should be responsible for mailing signed checks?
Accounts payable clerk
Payroll clerk.

29. A client's expenditure/disbursement cycle begins with requisitions from user departments and ends with the receipt of materials
and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to
a. Evaluate the reliability of information generated by the cycle.
b. Investigate the physical handling and recording of unusual acquisitions of materials.
c. Consider the need to be on hand for the annual physical inventory count if this system is not functioning properly.
d. Ascertain that materials said to be ordered, received, and paid for are on hand.
30. Which of the following is a primary function of the purchasing department?
a. Authorizing the acquisition of goods.
b. Ensuring the acquisition of goods of a specified quality.
c. Verifying the propriety of goods of a specified quality.
d. Reducing expenditures for goods acquired.
31. An auditor is planning the consideration of internal control over the expenditure/disbursement cycle. The auditor will be least
influenced by
a. The availability of a company procedures manual describing purchasing and cash disbursement procedures.
b. The scope and results of work performed by the company's internal auditors.
c. The existence within the purchasing department of control procedures that offset deficiencies.
d. The strength or deficiency of control procedures in other areas, e.g., sales and accounts receivable.

32. Omitting quantities from copies of purchase orders sent to the receiving department is a control procedure intended mainly to
a. Ensure that goods received are physically counted by receiving department personnel.
b. Identify and return damaged goods as soon as they are received.
c. Provide a crosscheck for verifying the accuracy of perpetual inventory records.
d. Prevent theft of goods by receiving department personnel.
33. Which of the following is not an appropriate activity for the treasurer's department?
a. Prepare checks.
b. Forward checks to vendors.
c. Cancel vouchers.
d. Prepare vouchers.
34. An effective internal control procedure that protects against the preparation of improper or inaccurate disbursements is to
require that all checks be


Signed by an official after necessary supporting evidence has been examined.

Reviewed by the treasurer before mailing.
Sequentially numbered and accounted for by internal auditors.
Perforated or otherwise effectively canceled when they are returned with the bank statement.

35. As an in-charge auditor, you are reviewing a write-up of internal control in cash receipt and disbursement procedures. Which of
the following deficiencies alone should cause you the least concern?
a. Checks are signed by only one person.
b. Signed checks are distributed by the controller to approved payees.
c. The treasurer fails to establish bona fide names and addresses of check payees.
d. Cash disbursements are made directly out of cash receipts. (AICPA ADAPTED)
36. Matching the supplier's invoice, the purchase, and the receiving report normally should be the responsibility of the
a. Receiving department.
b. Purchasing department.
c. Accounting function.
d. Treasury function.
37. To avoid potential errors and irregularities, well-designed controls in the accounts payable area should include a separation of
which of the following functions?
a. Cash disbursements and vendor invoice verification.
b. Vendor invoice verification and merchandise ordering.
c. Physical handling of merchandise received and preparation of receiving reports.
d. Check signing and cancellation of payment documentation. (AICPA ADAPTED)
38. Which of the following is a necessary control procedure for cash disbursements?
a. Checks should be signed by the controller and at least one other employee of the company.
b. Checks should be sequentially numbered, and the numerical sequence should be accounted for by the person preparing the
bank reconciliation.
c. Checks and supporting documents should be marked "Paid" immediately after the check is returned with the bank
d. Checks should be sent directly to the payee by the employee who prepares documents that authorize check preparation.
39. Which of the following is not a common activity of the expenditure/disbursement cycle?
a. Purchasing.
b. Fixed asset additions.
c. Receiving.
d. Recording.
40. Which of the following functions is not appropriate for the accounts payable department?
a. Compare purchase requisitions, purchase orders, receiving reports, and vendors' invoices.
b. Prepare purchase orders.
c. Prepare voucher and daily summary.
d. File voucher package by due date.
41. The

accounts payable department generally should

Cancel supporting documentation after a cash payment is mailed.
Approve the price and quantity of each purchase requisition.
Assure that the quantity ordered is omitted from the receiving department's copy of the purchase order.
Agree the vendor's invoice with the receiving report and purchase order.

42. Based on observations made during an audit, an independent auditor should discuss with management the effectiveness of
procedures that control against the purchase of
a. Supplies purchased from a vendor who offers no trade or cash discounts.
b. Inventory acquired just-in-time.
c. Equipment that is needed but does not qualify for investment tax credit.
d. Supplies ordered without considering potential volume discounts.
43. Internal control is improved when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to
a. Department that initiated the requisition.
b. Receiving department.
c. Purchasing agent.
d. Accounts payable department.