Remittance advices. Which of the following would most likely be detected by an auditor’s review of the client’s sales cutoff? Excessive goods returned for credit.
Which of the following might be detected by an auditor’s cutoff review and examination of sales journal entries for several days prior to the balance sheet date?
Which of the following might be detected by auditors’ cutoff review and examination of sales journal entries for several days prior to the balance sheet date? Sending negative confirmations to all customers as of the year-end date.
What should the auditor’s direction of testing be from to detect overstatement of sales?
Answer and Explanation: The direction of testing would be from the financial statements of the to source documents.
Which of the following procedures would an auditor most likely perform to identify unusual sales transactions?
Which of the following procedures would an auditor most likely perform to identify unusual sales transactions? Performing a trend analysis of quarterly sales.
Which of the following would be the test to determine that shipments made were actual sales?
Which of the following would be the test to determine that shipments made were actual sales? Vouch bills of lading to the customer order documents.
How does the auditor test for sales cutoff?
I. Trade receivable balances and Sales – An auditor needs to satisfy himself with the cut-offs to check whether trade receivable balances that were supposed to be recorded have been recognized in the financial statements, Without a cut-off, sales can be understated or overstated, thus, cut-off tests should be performed. Following are a few examples:
For the invoices which are issued during the last 5 days of the reporting year, i.e., just before the cut-off date & which have been included in the debtors’ balance, the auditor should check that the goods concerned should have been dispatched and should not be lying with the company. In other words, sales should be recognized only when the risk and rewards in the goods are transferred to the buyer. The auditor should ensure that all goods dispatched prior to the year-end have been properly invoiced and included in trade receivables. This should be examined on a test-check basis. Sales invoice dates should be matched to the dates of the goods dispatched note (material outward). For instance, if the date of the GDN is March, then its related invoice must be posted in March only. It will ensure that revenue is recognized in the correct period. No goods which are dispatched after the year-end should have been invoiced and included in trade receivables for the reporting year under audit. As part of the sales cut-off tests, auditors should review credit notes issued after year-end and establish whether any sales made before the year-end are returned to the company after the year-end. As this may have a major influence on sales recognized before the end of the financial year.
What is sales cut off testing audit?
Completeness Testing – Audit procedures can test to see if any transactions are missing from the accounting records. For example, the client’s could be perused to see if any payments to were not recorded in the books, or if from were not recorded. As another example, inquiries can be made with management and third parties to see if the client has additional that have not been in the,
How does an auditor detect overstatement of sales?
This overstatement can be revealed using vouching. If shipping records do not exist, the company may be lying about its sales.
How do you test sales audit accuracy?
The accuracy assertion addresses whether the transaction was recorded at the correct amount. The most common way to test accuracy for revenue or sales transaction is to obtain the invoice that was sent to the customer and compare or agree the two pieces of information.
How must the auditor check whether all sales are recorded?
To have a test check on sales, auditor has to draw a sample of sales invoices.
What are the five procedures an auditor should perform in determining whether to accept a client?
For prospective clients, suggested procedures include (1) obtaining financial statements, (2) performing third-party inquiries, (3) communicating with predecessor auditors, (4) evaluating independence issues, and (5) reviewing pertinent regulatory rules.
Which of the following procedures would an auditor most likely follow to assess?
The correct answer is (A.) Make a preliminary judgment about materiality. An auditor is most likely to plan about the materiality of auditing in the planning stage.
Which of the following is the best audit procedure to detect recorded sale with no shipment?
To test for recorded sales for which there were no actual shipments, the auditor vouches from the: sales journal to the shipping documents. An effective procedure to test for unbilled shipments is to trace from the: shipping documents to the sales journal.
Which of the following auditing procedures would provide the best audit evidence in testing the existence of the accounts receivable balance?
The use of confirmations to test accounts receivable is considered a generally accepted audit procedure. Confirmations yield evidence about existence and the gross valuation of a receivable balance.
What are cutoff tests designed to detect credit sales made before?
Cash Cycle, Revenue Cycle, and Expenditure Cycle – CPA Auditing and Attestation (AUD) An example of an internal control procedure regarding the sale of an item on credit. Possible Answers: Management would check the vendor account number Management would check the vendor address Management would ensure vendor has an active tax ID Number Management would review terms of sale Correct answer: Management would review terms of sale Explanation : In this scenario, management would review the terms of sale.
- The other choices are controls over the procurement cycle.
- Management would ensure proper segregation of duties by: Possible Answers: Making sure employees don’t record Accounts Receivable Making sure employees don’t deposit cash Making sure employees don’t both make adjusting entries and prepare statements Making sure employees don’t bill customers Correct answer: Making sure employees don’t both make adjusting entries and prepare statements Explanation : Items b, c, and d would be appropriate job duties for specific employees.
Combining the preparation of adjusting entries with financial statements would be a departure from internal control. To ensure all transactions were included in financial statements Possible Answers: Receivables are tested on an interim basis All receivables are collected Any receivable not collected is evaluated subsequent to year end Correct answer: Any receivable not collected is evaluated subsequent to year end Explanation : A subsequent test of accounts receivable is necessary to determine that all accounts receivable were included in the financial statements.
- The auditors will test subsequent receipts to determine if the revenue transaction was included in the appropriate period.
- Tests designed to detect credit sales made before the end of the year that has been recorded in the subsequent year provide assurance about management’s assertion regarding: Possible Answers: Explanation : Cutoff tests are designed to determine whether transactions have been recorded in the proper period.
Tests to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about both cutoff and completeness. An auditor is required to confirm A/R if the A/R balances are: Possible Answers: Subject to valuation estimates Material to the financial statements Older than the prior year Correct answer: Material to the financial statements Explanation : The use of audit confirmations for an entity;’s A/R is a required GAAP procedure if the A/R balances are deemed material to the balance sheet.
- Iting and lapping are methods of potential fraud that would be discovered in which business cycle? Possible Answers: Correct answer: Cash cycle Explanation : These types of fraud would be cash related frauds as they require the movement of cash.
- Proper segregation of duties requires that Possible Answers: Bank reconciliations are not done by those in charge of disbursements Purchase requests are generated by the purchasing agent The receiving clerk signs the purchase order The purchasing agent does not prepare purchase orders Correct answer: Bank reconciliations are not done by those in charge of disbursements Explanation : Proper segregation of duties requires that bank reconciliations are prepared by those employees not associated with disbursing funds.
Physical control over those in charge of disbursement would be: Possible Answers: Bank reconciliations are performed timely Proper authorization by a supervisor Proper review of timecards are established Employees in charge of cash disbursements are bonded Correct answer: Employees in charge of cash disbursements are bonded Explanation : Physical control is not associated with procedures.
- The use methods to protect assets such as physical barriers and mitigating activities such as insurance.
- The other examples are procedural internal control methods.
- At the end of each month, the senior accountant compares a vendor statement to the accounts payable.
- This is an example of a Possible Answers: Correct answer: review procedure Explanation : Comparing independent documents with company records is a form of the review procedure.
It doesn’t require authorization or physical control. In auditing A/P, an auditor’s procedures most likely would focus primarily on management’s assertion of: Possible Answers: Understandability and classification Correct answer: Completeness Explanation : When testing liabilities, an auditor generally is concerned about understatement. Angela Certified Tutor University of South Alabama, Bachelor in Arts, Biology, General. Florida Atlantic University, Master of Science, Environmenta. Karen Certified Tutor University of North Dakota, Bachelor of Science, English. Northern Arizona University, Master of Arts Teaching, Elementary Sc. Lamar Certified Tutor Cleveland State University, Bachelors, Mathematics. If you’ve found an issue with this question, please let us know. With the help of the community we can continue to improve our educational resources. If you believe that content available by means of the Website (as defined in our Terms of Service) infringes one or more of your copyrights, please notify us by providing a written notice (“Infringement Notice”) containing the information described below to the designated agent listed below.
- If Varsity Tutors takes action in response to an Infringement Notice, it will make a good faith attempt to contact the party that made such content available by means of the most recent email address, if any, provided by such party to Varsity Tutors.
- Your Infringement Notice may be forwarded to the party that made the content available or to third parties such as ChillingEffects.org.
Please be advised that you will be liable for damages (including costs and attorneys’ fees) if you materially misrepresent that a product or activity is infringing your copyrights. Thus, if you are not sure content located on or linked-to by the Website infringes your copyright, you should consider first contacting an attorney.
Please follow these steps to file a notice: You must include the following: A physical or electronic signature of the copyright owner or a person authorized to act on their behalf; An identification of the copyright claimed to have been infringed; A description of the nature and exact location of the content that you claim to infringe your copyright, in \ sufficient detail to permit Varsity Tutors to find and positively identify that content; for example we require a link to the specific question (not just the name of the question) that contains the content and a description of which specific portion of the question – an image, a link, the text, etc – your complaint refers to; Your name, address, telephone number and email address; and A statement by you: (a) that you believe in good faith that the use of the content that you claim to infringe your copyright is not authorized by law, or by the copyright owner or such owner’s agent; (b) that all of the information contained in your Infringement Notice is accurate, and (c) under penalty of perjury, that you are either the copyright owner or a person authorized to act on their behalf. Send your complaint to our designated agent at:
Charles Cohn Varsity Tutors LLC 101 S. Hanley Rd, Suite 300 St. Louis, MO 63105 Or fill out the form below: : Cash Cycle, Revenue Cycle, and Expenditure Cycle – CPA Auditing and Attestation (AUD)
What is the cut off date in auditing?
In accounting, the cutoff date is the point in time that delineates when additional business transactions are to be recorded in the following reporting period, For example, January 31 is the cutoff date for all transactions that will be recorded in the month of January.
What is a cut off in accounting?
What is a cut-off? The cut-off signals the point at which the retention period begins for a particular type of record. Cut-offs are intended to line up with the way the records are typically organized (e.g. by fiscal, calendar, or academic year). For example, the cut-off for many types of financial records is the end of the fiscal year. : What is a cut-off?
What is the meaning of sales cut off?
Sale Cut-off Date means with respect to any Fund, the last date upon which Shares of such Fund were issued in a transaction taken into account in computing the Purchase Price paid by the Purchaser on any Purchase Date in respect of the Receivables of such Fund.
What is the cutoff of sales transactions?
The sales cut-off test is the test that compares the sales transactions to the sales data before and after the end of the year to the sales invoices, billings, and shipping documents. It is a method used to find the revenue which will be recognized and to check whether the sales transaction is recorded or not.
Why does an auditor perform cut off testing on purchases and accounts payable?
Methods of Auditing – The basic way to audit an accounts payable department is to match general ledger transactions to the figures in your general ledger. Running cutoff tests will ensure whether transactions for the fiscal year are included in your end-of-year financial statements.
An audit is checking to see you have established an internal control system that documents everything accurately and within the correct timeframe. There is no standard way to perform an AP audit. Typically, it is the auditor’s choice. The method is chosen based on the size and shape of a particular business, as well as the desired thoroughness.
The implementation of GAAP regulations will vary by state. Some states allow public companies to push extra reports that don’t need to follow GAAP standards or rules. Despite these differences, auditors are generally looking for the same things, which include:
- Compliance of records
- Proper disclosure
This confirms whether an organization’s records present an accurate view of the business. The sole purpose of an audit is to establish an effective internal control system. This is typically done in four separate stages.
What should auditor trace transactions from if auditor is expected to detect overstatement of sales?
If the objective of an auditor’s test of details is to detect the overstatement of sales, the auditor should trace transactions from the: Sales journal to the shipping documents.
How must the auditor check whether all sales are recorded?
To have a test check on sales, auditor has to draw a sample of sales invoices.
Which assertion do auditors test when they trace a sample of sales cash receipts and sales adjustment transactions to their recording in the accounting records?
To test the completeness assertion, the auditor should trace a sample of sales, cash receipts, and sales adjustment transactions to their recording in the accounting records.