Revenue recognition criteria is outlined in correct answers Staff Accounting Bulletin 101
For revenue to be recognized: some persuasive ______________________________ has to exist, delivery has occurred or services have been __________, the sellers price to the buyer is fixed or ________________...
ACCT 5200 FINAL || WITH 100% VERIFIED
SOLUTIONS.
Revenue recognition criteria is outlined in correct answers Staff Accounting Bulletin 101
For revenue to be recognized: some persuasive ______________________________ has to
exist, delivery has occurred or services have been __________, the sellers price to the buyer is
fixed or ________________, collectability is _______________________. correct answers
evidence of an arrangement, rendered, determinable, reasonably assured
Fraud Risks correct answers side agreements, channel stuffing, related party transactions, bill
and hold sales
Major accounts for revenue recognition correct answers Sales revenue, AR, cash receipts
the likelihood that in the absence of internal controls, an error or fraud will enter the accounting
information system correct answers Inherent risk
Inherent risk is assessed as high unless the combination of ______________________ justify a
lower assessment correct answers inherent risk factors
factors justifying a lower inherent risk assessment include: correct answers low motivation to
materially misstate for external parties, stable business environment and routine transactions, no
complex or contentious revenue recognition issues, no material prior year misstatements
the likelihood that an error or fraud will not be caught by the clients internal control correct
answers control risk
risk is assessed at the _______ level correct answers assertion
a mix of procedures must be selected to support ____________ risk assessment for each
assertion correct answers detection
the likelihood that an error or fraud will not be caught by an auditors procedures correct answers
detection risk
focuses on the sale of goods and services to customers. For all entities, the revenue and
purchasing processes represent the two major business processes that affect the financial
statements correct answers revenue process
revenue must be recognized in conformity with GAAP in order for an auditor to issue an correct
answers unqualified opinion
revenues measured by the exchange value of _______________ provided correct answers
goods/services
,FASB No. 5 states that revenue must be either correct answers realized/realizable or earned
revenue is realized when correct answers a product or service is exchanged for cash, a promise to
pay cash or other assets that can be converted into cash
Revenue is earned when correct answers an entity has substantially completed the earning
process (product delivered and service provided)
auditors should be alert for the following activities that are fraud risks: correct answers side
agreements and channel stuffing
arrangements that are used to alter the terms and conditions of recorded sales in order to entice
customers to accept delivery of goods and services correct answers side agreements
marketing practice that suppliers sometimes use to boost sales by inducing distributors to buy
substantially more inventory than they can promptly resell correct answers channel stuffing
(trade loading)
For most entities, the revenue recognition process occurs over a short period of time (days or
weeks), but in certain industries, such as construction or defense, the revenue recognition process
______________________ correct answers may extend over a period of years.
Three types of transactions typically processed through the revenue process correct answers the
sale of goods/rendering of a service for cash or credit, the receipt of cash from the customer,
return of goods by the customer for credit/cash
contains the details of the type and quantity of products/services ordered by the customer correct
answers customer sales order
form that investigates the creditworthiness of the customer correct answers credit approval form
the report of all customer orders for which processing has not been completed correct answers
open order report
should be prepared anytime goods are shipped to a customer. generally serves as a bill of lading
correct answers shipping document
used to bill a customer correct answers sales invoice
used to record necessary information for each sales transaction correct answers sales journal
contains details of all sales, cash receipts and credit memorandum transactions correct answers
customer statement
, used to monitor collection of receivables and ensure details of the AR subsidiary ledger agree
with general ledger control account correct answers Aged Trial Balance of AR
mailed with customer bill and returned with customers payment for goods or services correct
answers remittance advice
contains columns for debiting cash, crediting AR and crediting other accounts such as scrap sales
or interest income correct answers cash receipts journal
authorizes the write off of an uncollectible acount correct answers write off authorization
initial function of revenue process is entry of new sales order into the system correct answers
order entry
must determine that the customer is able to pay for the goods/services correct answers credit
authorization
credit authorization function also has responsibility for monitoring _____________ correct
answers customer payments
collection function must ensure that all cash collections are properly identified and promptly
deposited intact at the bank correct answers cash receipts
responsible for ensuring that all billings, adjustments and cash collections are properly recorded
correct answers AR
to ensure that all revenues, collections, etc. are properly summarized in the accounts correct
answers General ledger
segregation of duties is important in the revenue process because of the potential for correct
answers theft and fraud
four specific inherent risk factors that may affect the revenue process are correct answers
industry related factors, the complexity of revenue recognition issues, the difficulty of auditing
transactions/account balances, misstatements detected in prior audits
for some entities, the recognition of revenue may involve correct answers complex calculations
the presence of misstatements in previous audits is a good indicator that misstatements are likely
to be ________________________________ correct answers present during the current audit
the auditors decision process for planning and performing tests of controls involves considering
the _________________________ that can occur if internal control does not operate effectively
correct answers assertions and possible misstatements
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