QUESTION 1.

Activities found in the Revenue cycle as from the first activity to the last activity.
1. Receive and answer customer inquiries.
2. Take customer orders and enter them into AIS.
3. Approve credit sales.
4. Check inventory availability.
5. Initiate back orders for goods out of stock.
6. Pick and park customer orders.
7. Ship goods to customers or perform services.
8. Bill customers for goods shipped or service performed.
9. Update (increase) sales and accounts receivable.
10. Receive customer payments and deposit them in the bank.
11. Update (reduce) accounts receivables.
12. Handle sales return, discount, allowance and bad debts.
13. Prepare management reports.
14. Send appropriate information to the other cycles.
QUESTION 2.
a) Two forms of accounts receivable confirmation requests which are commonly used in
practice are as follows;
1. Positive confirmation.
This refers to the request that the confirming party respond directly to the auditor
indicating whether the confirming party agrees or disagrees with the information in the
request or providing the requested information. These are very useful when individual
account balances are relatively large or when important figures of inaccuracy are
expected and negative.
2. Negative confirmation.
This refers to a request that the confirming party respond directly to the auditor only if
the confirming party disagrees with the information provided in the request. Negative
confirmation form requests the recipient to respond only if he or she disagrees with the
information stated on the request these are appropriate when internal control is adequate,
balances are small and the auditor has no reason to believe that debtors will not return the
confirmation requests.

b) Factors to be considered by an auditor in determination of confirmation request form.

 The assertions being addressed
 The method of communication
 Prior experience on the audit or similar engagements
 The layout and presentation of the confirmation request
 Specific identified risk of material misstatement
 The ability of the intended confirming party to confirm or provide the requested
information.
 c) The alternative audit procedures that can be used by the auditor to address that no replies
have been made by the confirming party are as follows;
 On accounts receivable balances- An auditor have to examine specific
subsequent cash receipts, shipping documentation and sales near the period end.

 On accounts payable balances- An auditor have to examine subsequent cash

disbursements or correspondence from third parties and other records such as
good received notes.

d) The assertions and how circularization is useful in addressing each assertion.

1. Existence: This is used to show whether the recorded receivables exist at the balance
sheet date.
2. Rights: Which is used to show whether the recorded receivables represent rights the
audited entity holds over debtors.eg have the receivables been sold?
3. Valuation: to show whether the receivables are reported at appropriate amounts.

QUESTION 3.
The situations in which confirmations are unlikely to be effective.
1. Where customers are small businesses or private individuals, they are less likely to
maintain sufficiently accurate accounts payable ledger records to provide a reliable
response.
2. When larger businesses generally maintain less effective controls over the completeness
of liabilities recorded in the accounts payable ledger so responses may be unreliable.
3. When customers are not be able to confirm total balances if they use a voucher system.
4. When customers are unlikely to admit to owing more than is shown on the monthly
statement.
QUESTION 4.
Cut off refers to the tests which are performed on sales and cash receipts as part of the year
ended work to verify the recorded balance at year ended. The sales cut off test traces movements
a few days on either side of balance date which is designed to ensure that sales and accounts
receivable are recorded in the correct accounting period as the related inventory. The cash
receipts cut off test is designed to ensure cash receipts are recorded in the proper accounting
period. For example all employer contributions for the year have been properly recorded even if
received in the successive year.
A cut off to the auditor is important when establishing the fairness in the financial statements
such as;
Cash receipts cut off test is designed to ensure cash receipts are recorded in the proper
accounting period.
Cut off provide information about the financial performance and cash flow of entity that is useful
to a wide range of users in making economic decisions.