ACC 521 Study Guide - Final Guide: General Ledger, Accounts Receivable, Transaction Processing

Understanding the management assertions related to a specificcontrol is an important factor in preparing the tests of controls.Using the assertions provided below, select the managementassertion(s) that relates to the purpose of the controls in thetable. (A management assertion may be selected once, more thanonce, or not at all.)

Management Assertions

(a) Existence or occurrence

(b) Completeness

(c) Rights and obligations

(d) Valuation or allocation

(e) Presentation and disclosure

(f) Authorization

(g) Cutoff

True or False:

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

A properly designed internal control system is a key part of systems design, analysis, and performance.

An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies.

Technologically advanced accounting systems rarely need monitoring for errors because computers always process transactions correctly.

Separation of duties involves dividing responsibility for a transaction or a series of related transactions between two or more individuals or departments.

The Sarbanes-Oxley Act (SOX) requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

A receivable is an amount due from another party.

Credit sales are recorded by crediting Accounts Receivable.

The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.

A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

The direct write-off method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible.

Q11. In performing a test of controls, the auditors vouch asample of entries in the purchases journal to the supportingdocuments. Which assertion would this test of controls most likelytest?

A. Completeness

B. Existence

C. Valuation

D. Rights

A. Determination of quantities of goods received

B. Detection of damaged or defective merchandise

C. Preparation of a shipping document

D. Transmittal of goods received to the store’s department

Q8. Which of the following should be included as a part ofinventory costs of a manufacturing company?

A. Factory Overhead only

B. Direct Labor and Raw Materials

C. Direct Labor, Raw Materials and Factory Overhead

D. None of the Above

Q9. When a primary risk related to an audit is possibleoverstated inventory, the assertion most directly related is:

A. Existence

B. Completeness

C. Clarity

D. Presentation

Q10. When confirming accounts payable, the approach is mostlikely to be one of:

A. Selecting the accounts with the largest balances at year-end,plus a sample of other accounts

B. Selecting the accounts of companies with whom the client haspreviously done the most business, plus a sample of otheraccounts.

C. Selecting a random sample of accounts payable at year-end

D. Confirming all accounts

Q1. Reconciliation of the bank account should not be performedby a person who also processes cash disbursements.

A. True B. False

Q2. Which of the following controls would most likely reduce therisk of diversion of customer payments by a client’s employees?

A. Pre-numbered checks

B. A bank lockbox

C. Monthly bank reconciliations

D. Daily deposit of cash receipts

Q3. The best way to verify the amounts of dividend revenuereceived during the year is:

A. Re-computation of dividend revenue

B. Examination of cash disbursementrecords

C. Verification by reference to dividend record books

D. Confirmation with dividend-paying companies

Q4. To determine that all sales have been recorded, the auditorswould select a sample of transactions from the:

A. Shipping Department Files C. Receiving Department Files

B. Accounts Receivable Ledger D. Sales Journal

Q5. Which of the following is most likely to be an example offraudulent financial reporting related to sales?

A. Inaccurate billing due to a lack of internalcontrols

B. Recording sales when the customer is very likely to returnthe goods

C. Misbilling a client due to a data input error

D. Cashier error when recording a cash sale

Q6. Which of the following is NOT among the criteria thatordinarily exist for revenue to be recognized?

A. Persuasive evidence of an arrangementexists

B. Collectability is reasonably assured

C. The seller’s price to the buyer is fixed or determinable

D. Delivery is scheduled to occur at some point in thefuture

Q7. The receiving department is least likely to be responsiblefor the:

A. Determination of quantities of goods received

B. Detection of damaged or defective merchandise

C. Preparation of a shipping document

D. Transmittal of goods received to the store’s department