audit exam 3

The revenue cycle includes activities related to _ all the way through _.

1.) sales2.) collections

The timing of revenue recognition is an _ _.

inherent risk

The auditor must understand _ no matter what type of audit he/she is performing

controls

Auditors give _ _ on the financial statements they are auditing

reasonable assurance

The audit report must be in _

writing

A division of _ is when the auditors mention other auditors in their report

responsibility

Explanatory paragraphs in unqualified audit reports reference the notes to the _ _

financial statements

Substantial _ is explanatory language that can be used in the unqualified report

doubt

The term _ _ is used to qualify a report

except for

the revenue cycle transaction includes receiving a customers purchase _, check inventory _ status, generate _ order, obtain _ approval, prepare _ and packing documents, ship and _ shipment of goods, prepare and send the _, send monthly _ to customers and receive _

1.) order.2.) stock3.) back.4.) credit.5.) shipping.6.) verify7.) invoice8.) statements9.) payments

A control objective of the revenue cycle to assure transactions are recorded accurately would be making sure recorded sales agree to the _ _

invoice price

a formal legal document that conveys responsibility to the shipper

bill of lading

The bill of lading is the evidence that the transfer of goods took place to the _

customer

Turnover ratios are part of _ _

ratio analysis

the primary inherent risk associated with receivables is that the _ _ is not valid because the receivables recorded do not exist or they are not _ from the customer

1.) net amount2.) collectible

an inherent risk would be that the receivables are pledged as _ against specific loans with restricted use ( disclosures of such restrictions are required)

collateral

Inherent risk: receivables are incorrectly classified as _ when the liklihood of collection next year is low

current

Inherent risk : collection of a receivable is contingent on specific events that cannot currently be _

estimated

Inherent risk: _ is not required until the purchaser sells its product to its end customer

payment

Inherent risk: A/R are _ incorrectly, and potentially uncollectable amounts are not recognized

aged

Inherent risk: orders are accepted from customer with poor credit, but the _ for _ _ is not increased accordingly

allowance for doubtful accounts

When an auditor considers and compares their own calculation of AFDA to that of managements, they are trying to substantiate the _ _ _

valuation of receivables

what does AFDA stand for?

Allowance for doubtful accounts

The A/R aging is used by the auditors to assess the adequacy of the _

AFDA

The difference in positive and negative confirmations is the customers _ of response

mode

Division of responsibility is described in the _ _

introductory paragraph

The _ paragraph in the unqualified opinion gives information related to the audit planning and procedures

scope

An unqualified opinion with an _ paragraph would be used by the auditor to draw attention to a large related party transaction

explanatory

A scope limitation would not result in an unqualified opinion if _ _ _ _ is the opening sentence in the opinion paragraph of an adverse opinion

does not fairly present

A scope limitation would not result in an unqualified opinion if there is a _ _ _ overshadowing the overall financial statements, the auditor would give an adverse opinion

material dollar misstatement

A scope limitation would not result in an unqualified opinion when the auditor is not _ with respect to the client he/she may not accept the engagement

independent

A scope limitation would not result in an unqualified opinion ifa justified departure from _ would result in an unqualified opinion with an explanatory paragraph

GAAP