Question 1

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?
A) Count goods upon receipt in storeroom.
B) Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department.
C) Compare goods received with goods requisitioned in receiving department.
D) Verify vouchers for accuracy and approval in internal audit department.

Accepted Answer

Matching the purchase order, receiving report, and vendor's invoice ensures that the goods were actually received before payment is made. This procedure would help detect vouchers that were prepared for the payment of goods that were not received. The other procedures listed may help prevent other types of errors or fraud, but they do not specifically address this issue.

Question 2

Which of the following should sign checks under conditions of effective internal control?
A) Treasurer
B) Purchasing agent
C) Accounts payable clerk
D) Person preparing the checks

Accepted Answer

The treasurer should sign checks because they are typically responsible for the organization's financial activities and have the authority to authorize payments. This provides a checks and balances system within the organization and helps to prevent fraud.

Question 3

How do auditors determine the extent of testing of internal controls in the acquisition and payment cycle?

Accepted Answer

The answer of How do auditors determine the extent of...

Question 4

An auditor is using audit sampling to test transactions in the acquisition and payment cycle.She would normally set the tolerable exception rate at what level?
A) Low
B) Medium
C) High
D) Indeterminate

Accepted Answer

In the acquisition and payment cycle, there is a higher risk of financial misstatement due to the large volume of transactions and potential for fraud. Therefore, the auditor would set a low tolerable exception rate to have a lower acceptable level of deviation from the control procedures. This means that the auditor would require a high level of assurance that the tested transactions are accurate and reliable.

Question 5

A CPA learns that his client has paid a vendor twice for the same shipment,once based upon the original invoice and once based upon the monthly statement.A control procedure that should have prevented this duplicate payment is:
A) attachment of the receiving report to the disbursement report.
B) prenumbering of disbursement vouchers.
C) use of a limit or reasonableness test.
D) prenumbering of receiving reports.

Accepted Answer

By attaching the receiving report to the disbursement report, the CPA can verify that the vendor was only paid once for the shipment. This ensures that the payment is accurately recorded and prevents duplicate payments. Prenumbering of disbursement vouchers and receiving reports can also be helpful control procedures, but they do not directly address the issue of duplicate payments. A limit or reasonableness test may prevent overpayment or fraud, but it may not be effective in identifying duplicate payments.

Question 6

Discuss the key internal controls that should be present in the processing purchase orders function in the acquisitions and payment cycle.

Accepted Answer

The answer of Discuss the key internal controls that should...

Question 7

What are the three most important controls over cash disbursements?

Accepted Answer

The answer of What are the three most important controls...

Question 8

Significant audit efficiencies can be achieved on many audits when controls are operating effectively.

Accepted Answer

Effective controls reduce the risk of material misstatements and errors, which allows auditors to focus their efforts on areas of higher risk. This ultimately leads to significant audit efficiencies.

Question 9

You are performing the audit of Jenkins and Company.Your tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively.This would normally allow you to:
A) eliminate the need for substantive testing of balances for accounts payable.
B) reduce the need for substantive testing of balances for accounts payable.
C) reduce control tests in other transactions cycles.
D) increase the need for substantive testing of balances for accounts payable.

Accepted Answer

When tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively, it means that the risk of material misstatement in the accounts payable balance is lower. This allows auditors to reduce the need for substantive testing of balances for accounts payable, while still fulfilling their responsibility to obtain reasonable assurance about the fairness of the financial statements. Therefore, option B is the best choice.

Question 10

Authorization for accepting goods in the receiving department should be based on the:
A) vendor invoice.
B) requisition request.
C) purchase order from the purchasing department.
D) vendor statement.

Accepted Answer

Authorization for accepting goods in the receiving department should be based on the purchase order from the purchasing department. This ensures that the goods received are the ones ordered and that the prices and quantities are correct. The vendor invoice and statement may contain errors or discrepancies, and the requisition request is only a request for the goods, not an authorization for their acceptance.

Question 11

Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.

Accepted Answer

The answer of Discuss the key internal controls that should...

Question 12

Listed below are some management assertions made for the acquisition and payment cycle.For each one give an example of how the auditor by using the documents normally found in the process can apply an auditing procedure to test the assertion.
Completeness
Timing
Accuracy

Accepted Answer

The answer of Listed below are some management assertions made...

Question 13

Matching the supplier's invoice,the purchase order,and the receiving report prior to preparing the voucher would normally be the responsibility of the:
A) warehouse receiving function.
B) purchasing function.
C) general accounting function.
D) treasury function.

Accepted Answer

Matching the supplier's invoice, the purchase order, and the receiving report is part of the accounts payable process and is typically the responsibility of the general accounting function. The warehouse receiving function is responsible for physically receiving and verifying the goods, the purchasing function is responsible for initiating the purchase order, and the treasury function is responsible for cash management and financial planning.

Question 14

With respect to a small company's system of purchasing supplies,an auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been:
A) requested by and approved by the same individual.
B) used in the course of business and solely for business purposes during the year under audit.
C) received, counted, and checked to quantities and amounts on purchase orders and invoices.
D) properly recorded as assets and systematically amortized over the estimated useful life of the supplies.

Accepted Answer

The auditor's primary concern is to ensure that the supplies ordered and paid for have been received, counted, and checked against quantities and amounts on purchase orders and invoices. This process verifies that the company has received what it paid for, which is crucial for accurate financial reporting and inventory management.

Question 15

For effective internal control purposes,the vouchers payable department generally should:
A) approve the purchase order.
B) have the authority to sign the checks.
C) establish the agreement of the vendor's invoice with the receiving report and purchase order.
D) supervise the preparation of the receiving report.

Accepted Answer

The vouchers payable department should establish the agreement of the vendor's invoice with the receiving report and purchase order to ensure accuracy and prevent the approval of fraudulent or erroneous payments. While they may play a role in supervising the preparation of the receiving report or approving the purchase order, they should not have the authority to sign checks as this conflicts with segregation of duties principles.

Question 16

Which of the following tests of controls is least useful in assessing the transaction-related audit objective related to occurrence?
A) Examine documents in voucher package for occurrence.
B) Examine supporting documents for indication of approval.
C) Account for sequence of vouchers.
D) Attempt to input transactions with valid and invalid vendors.

Accepted Answer

Accounting for the sequence of vouchers primarily tests for completeness, ensuring all transactions are recorded. It is less useful for assessing occurrence, which focuses on whether transactions that have been recorded actually took place.

Question 17

The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of:
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.

Accepted Answer

The test of reconciling recorded cash disbursements with the cash disbursements on the bank statement is designed to ensure completeness. This test ensures that all cash disbursements recorded in the accounting system were actually paid and that no transactions were omitted. It does not provide evidence about occurrence (whether the transactions actually occurred), accuracy (whether the transactions were recorded correctly), or posting and summarization (whether the transactions were properly recorded in the ledger accounts).

Question 18

Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements,it is common in this audit area to use:
A) block sampling.
B) variables sampling.
C) attributes sampling.
D) probability proportional to size sampling.

Accepted Answer

Attributes sampling is the best choice for tests of controls and substantive tests of transactions. This type of sampling is used to assess the rate of occurrence of specific characteristics or attributes in a population. For example, an auditor might test a sample of cash disbursements to determine whether they were appropriately authorized by management. The auditor would select a sample of disbursements and determine whether each one was properly approved. The results of the sample would be projected to the entire population of disbursements. Attributes sampling is appropriate when the population is homogeneous and has a low rate of occurrence of the attribute of interest.

Question 19

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that:
A) acquisitions are correctly valued.
B) existing acquisitions are recorded.
C) acquisitions are correctly classified.
D) recorded acquisitions are for goods and services received.

Accepted Answer

The control objective mentioned in the question is related to ensuring that recorded acquisitions on the financial statements are for goods and services received by the entity being audited, rather than transactions that benefit only management or other employees. This objective is directly related to the completeness and accuracy of recorded acquisitions, which is covered by control D - recorded acquisitions are for goods and services received. Therefore, choice D is the best answer.

Question 20

An auditor performs a test to determine whether all merchandise for which the client was billed was received.The population for this test consists of all:
A) merchandise received.
B) vendors' invoices.
C) canceled checks.
D) receiving reports.

Accepted Answer

The population for this test consists of all vendors' invoices, as the auditor is checking to ensure that all billed merchandise was actually received. This involves matching the vendors' invoices (which detail what the client was billed for) to receiving documentation to confirm receipt of the billed items.

Quiz 18: Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?

Which of the following should sign checks under conditions of effective internal control?

How do auditors determine the extent of testing of internal controls in the acquisition and payment cycle?

An auditor is using audit sampling to test transactions in the acquisition and payment cycle.She would normally set the tolerable exception rate at what level?

A CPA learns that his client has paid a vendor twice for the same shipment,once based upon the original invoice and once based upon the monthly statement.A control procedure that should have prevented this duplicate payment is:

Discuss the key internal controls that should be present in the processing purchase orders function in the acquisitions and payment cycle.

What are the three most important controls over cash disbursements?

Significant audit efficiencies can be achieved on many audits when controls are operating effectively.

You are performing the audit of Jenkins and Company.Your tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively.This would normally allow you to:

Authorization for accepting goods in the receiving department should be based on the:

Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.

Listed below are some management assertions made for the acquisition and payment cycle.For each one give an example of how the auditor by using the documents normally found in the process can apply an auditing procedure to test the assertion. Completeness Timing Accuracy

Matching the supplier's invoice,the purchase order,and the receiving report prior to preparing the voucher would normally be the responsibility of the:

With respect to a small company's system of purchasing supplies,an auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been:

For effective internal control purposes,the vouchers payable department generally should:

Which of the following tests of controls is least useful in assessing the transaction-related audit objective related to occurrence?

The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of:

Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements,it is common in this audit area to use:

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that:

An auditor performs a test to determine whether all merchandise for which the client was billed was received.The population for this test consists of all: