The Auditor Has Determined That a Key Control in the Audit

question 52

Multiple Choice

The auditor has determined that a key control in the audit of the sales and collection cycle is that recorded sales are supported by authorized shipping documents and approved customer orders.What typical test of controls should be used in this situation?

• A)Examine a sample of duplicate sales invoices to determine that each on is supported by an authorized shipping document and approved customer order.
• B)Observe whether shipping documents are forwarded daily to billing and observe when they are billed.
• C)Examine a sample of sales invoices and agree prices to the authorized computer price list.
• D)Use audit software to trace postings from the batch of sales transactions to the subsidiary and general ledgers.

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Definitions:

Natural Monopoly

A market in which a single firm can provide a good or service at a lower cost than any potential competitor, due to economies of scale.

Lower Cost

A situation where the expenses involved in producing a good or service are reduced, leading to potential savings.

Social Regulation

Rules imposed by government aimed at improving societal welfare, focusing on areas such as health, safety, and the environment, rather than on economic matters.

Natural Monopoly

A market structure where a single firm can produce at a lower cost than can two or more firms, justifying limited competition.