Question 1

Identify the analytical procedures for the payroll and personnel cycle to test for possible misstatements.

Accepted Answer

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Question 2

A document identifying the description, supplier, quantity and related information for goods and services the company intends to purchase is the:
A) purchase requisition.
B) receiving report.
C) purchase order.
D) purchase catalogue.

Accepted Answer

A purchase order is a document used by a company to authorise a purchase transaction. It identifies the goods or services being purchased, the supplier, the quantity, and other relevant information. The purchase requisition is a request for goods or services, and the receiving report is a document used to confirm the receipt of goods. A purchase catalogue is a catalogue of items available for purchase, but it does not provide specific information about a particular transaction.

Question 3

The audit procedure 'Examine paid cheque for authorised signature, proper endorsement and cancellation by the bank' is used to test the existence objective for cash payments.

Accepted Answer

This audit procedure is used to test the existence objective for cash payments by ensuring that the cheque has been properly authorized, endorsed, and cancelled by the bank.

Question 4

The audit procedure 'Observe whether inventory movement takes place during the inventory count' provides assurance mainly for the completeness objective for physical inventory observation.

Accepted Answer

The audit procedure of observing whether inventory movement takes place during the inventory count helps to ensure that all inventory on hand is counted, thus providing assurance for the completeness objective of physical inventory observation.

Question 5

An auditor 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) prenumbering of payment vouchers.
B) use of a limit or reasonableness test.
C) prenumbering of receiving reports.
D) supporting documentation is examined before signing of cheques by an authorized person.

Accepted Answer

The best control procedure to prevent duplicate payments is to examine supporting documentation before signing cheques. This ensures that the payment is based on accurate information and eliminates the possibility of paying an invoice twice. Prenumbering of payment vouchers and receiving reports only ensures that all documents are accounted for, but does not prevent duplicate payments. A limit or reasonableness test can help prevent overpayment but would not necessarily prevent duplicate payments.

Question 6

To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year- end to related vendors' invoices to make sure they are not recorded as accounts payable.

Accepted Answer

To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace vendors' invoices to related receiving reports to make sure they are recorded as accounts payable before year-end, not the other way around.

Question 7

Identify three analytical procedures commonly used when auditing accounts in the inventory and warehousing cycle.

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Question 8

Discuss each of the primary documents and records used in the personnel and employment function in the payroll and personnel cycle.

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Question 9

The most common type/s of fraud by employees in the payroll area is/are:
A) nonexistent employees.
B) fraudulent hours.
C) unauthorized bonuses.
D) A and B.

Accepted Answer

Nonexistent employees and fraudulent hours are both common types of payroll fraud by employees. Nonexistent employees may be added to the payroll system and receive paychecks that are then stolen by the employee or an accomplice. Fraudulent hours may be added to an employee's time sheet, or the employee may claim overtime hours they did not actually work. Unauthorized bonuses are also a type of payroll fraud, but it is not as common as nonexistent employees and fraudulent hours.

Question 10

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the:
A) tests on long- term liabilities.
B) physical observation of inventory.
C) cash count.
D) confirmation of payables.

Accepted Answer

The accounts payable cutoff is related to the timing of inventory purchases, so it should be coordinated with the physical observation of inventory to ensure that inventory received is recorded in the correct period.

Question 11

The basis for the auditor's verification of inventory pricing and compilation is the substantive testing performed in that area. What is the purpose of each group of test?

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Question 12

Discuss each of the four business functions that comprise the acquisition and payment cycle.

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Question 13

Verifying acquisitions as part of the tests of the acquisition and payment cycle provides evidence about the accuracy of raw materials acquired and all manufacturing costs except labour.

Accepted Answer

Verifying acquisitions provides evidence about the accuracy of raw materials acquired and all manufacturing costs except labour, including indirect materials, indirect labour, and manufacturing overhead.

Question 14

Discuss the procedures involved in, and the purpose of, a surprise payroll audit.

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Question 15

The reliability of the perpetual inventory master file will affect the extent of the auditor's physical examination of inventory.

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Question 16

Match five of the terms for documents and records (a- m) used in the acquisitions and payment cycle with the descriptions provided below (1- 5):
a. purchase requisition
b. purchase order
c. receiving report
d. acquisitions journal
e. summary acquisitions report
f. vendor's invoice
g. debit note
h. voucher
i. accounts payable master file
j. accounts payable trial balance
k. vendor's statement
l. cheque
m. cash payments journal
1. A document indicating a reduction in the amount owed to a vendor because of returned goods or an allowance granted.
2. A document that specifies the details of an acquisition transaction and amount of money owed to the vendor for an acquisition.
3. A document prepared by the purchasing department indicating the description, quantity and related information for goods and services that the company intends to purchase.
4. A listing of the amount owed to each vendor at a point in time.
5. A document used to establish a formal means of recording and controlling acquisitions; it includes a cover sheet and a package of relevant documents.

Accepted Answer

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Question 17

Discuss the key documents used in the processing of purchase orders and receiving goods and services functions in the acquisitions and payment cycle.

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Question 18

When the client's perpetual inventory master files are inadequate, the auditor will probably choose to test the physical inventory prior to the balance sheet date.

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Question 19

State the primary determinants of the amount of time needed to perform the physical observation of inventory.

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Question 20

Discuss the two most common ways in which employees can defraud a company in the payroll area.

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Quiz 15: Audit of Transaction Cycles and Financial Statement Balances I