Question 1

In most credit sales audits, the auditor's concern over sales adjustment transactions is based upon the:

Accepted Answer

Sales adjustment transactions, such as returns and allowances, can be manipulated to conceal theft of cash by overstating returns or issuing fraudulent credit notes, making it a significant concern for auditors.

Question 2

From the following which would not be an appropriate control procedure for the invoicing of customers?

Accepted Answer

Segregating filling and dispatching sales orders does not directly relate to the invoicing process itself but rather to the physical handling and processing of orders. The other options (A, B, C) are directly related to ensuring the accuracy and authorization of the invoicing process.

Question 3

To enhance controls in the credit sales area, the warehouse should be instructed not to release (or dispatch) goods until:

Accepted Answer

The correct procedure for enhancing controls in the credit sales area involves the warehouse waiting to receive an approved sales order before releasing goods. This ensures that all sales are properly authorized and documented, reducing the risk of errors or fraud.

Question 4

Which of the following is not an example of a programmed application control?

Accepted Answer

Programmed application controls are designed to prevent errors or irregularities in data processing. Options A, B, and C are examples of such controls ensuring data integrity and consistency. Option D, allowing duplicate document numbers, does not prevent errors or irregularities, making it not an example of a programmed application control.

Question 5

The write-off of accounts receivable should be authorised by the:

Accepted Answer

The chief financial officer (CFO) is typically responsible for authorizing the write-off of accounts receivable, as it involves financial decision-making and oversight.

Question 6

Use of an authorised price list in preparing the sales invoices meets primarily the:

Accepted Answer

The use of an authorised price list in preparing sales invoices primarily meets the accuracy, valuation, or allocation assertion, as it ensures that the amounts billed to customers are correct and properly recorded.

Question 7

After making the deposit, the daily cash summary should be forwarded by the cashier directly to:

Accepted Answer

The daily cash summary should be forwarded to general accounting to ensure proper recording and reconciliation of cash transactions, maintaining separation of duties and internal controls.

Question 8

In a credit sales environment, the document that usually initiates the activity in the sales cycle is:

Accepted Answer

The customer order initiates the activity in the sales cycle as it is the request made by the customer to purchase goods or services, which then leads to the creation of a sales order by the company.

Question 9

Controls over approving credit relate to the:

Accepted Answer

Controls over approving credit primarily ensure that the amounts recorded for credit sales are accurate, properly valued, and allocated correctly. This relates directly to the accuracy, valuation, or allocation assertion, as it ensures that credit sales are recorded at the correct amounts and are properly included in the financial statements.

Question 10

The account balance audit objective, "Accounts receivable represent gross claims on customers at balance date and agree with the sum of the accounts receivable subsidiary ledger", is derived from the assertion category of:

Accepted Answer

This objective relates to ensuring that the accounts receivable balance is accurately recorded and valued, which aligns with the valuation and allocation assertion. It ensures that the gross claims on customers are correctly summed up and reflected in the financial statements.

Question 11

Which of the following is not normally considered a step in the credit sales functions?

Accepted Answer

Acquiring goods to fill the order is typically considered a part of inventory management or procurement, not directly a step in the credit sales functions. The credit sales functions mainly involve steps related to the sale of goods on credit, such as accepting customer orders, approving credit, and billing customers.

Question 12

Which of these is not a specific audit objective for sales and receivables?

Accepted Answer

Representation is not a standard audit objective in the context of sales and receivables. The common specific audit objectives for sales and receivables include existence or occurrence, completeness, and presentation and disclosure, among others. Representation is more related to the overall financial statements assertions rather than a specific audit objective for sales and receivables.

Question 13

In a credit sales environment, the best place to vest credit approval is in:

Accepted Answer

An independent credit department is best suited for credit approval as it can objectively assess credit risk without the pressure to increase sales, ensuring that credit is extended based on a customer's ability to pay.

Question 14

The main control objective of the recording of sales function is:

Accepted Answer

The main control objective of the recording of sales function is to ensure that sales are recorded accurately and in the proper period to maintain reliable financial records.

Question 15

Access controls should permit read-only access to transaction and master files except for authorised individuals. Which of the following illustrates such an exception?

Accepted Answer

Each option illustrates an exception where an authorized individual (credit controller or sales manager) is permitted to make changes to transaction or master files, which aligns with the principle of allowing exceptions for authorized individuals.

Question 16

Standard control procedures over customer remittances received through the mail include having the mailroom personnel:

Accepted Answer

Mailroom personnel should open the mail, restrictively endorse the cheques, and list each remittance on a prelist to ensure proper control and tracking before forwarding to the appropriate department.

Question 17

The best procedure for dealing with a non-response to a third positive request for confirmation of an accounts receivable is:

Accepted Answer

Examining subsequent cash collections can provide evidence that the receivable is valid and has been settled, which is a practical approach when direct confirmation is not received.

Question 18

In a credit sales environment, the documents that serves as the basis for internal processing of an order is:

Accepted Answer

The sales order serves as the basis for internal processing of an order in a credit sales environment. It is generated by the seller based on the customer's purchase order and details the specifics of the sale, such as the products or services ordered, quantities, and prices.

Question 19

Use of point-of-sale terminals to record over-the-counter cash sales provides all of the following except:

Accepted Answer

Point-of-sale terminals can provide visual displays, printed receipts, and control totals, but they cannot ensure that all cash sales are processed through the system, as this depends on the actions of the employees.

Question 20

Accounting for the numerical sequence of dispatch notes used in tracing will primarily meet the:

Accepted Answer

Accounting for the numerical sequence of dispatch notes helps ensure that all dispatches have been recorded, meeting the completeness assertion. This assertion concerns whether all transactions and events that should have been recorded have indeed been recorded.

Quiz 14: Auditing Sales and Receivables