Question 1

What are the two factors that the audit strategy depends on for the acquisition and payment cycle?

Accepted Answer

The answer of What are the two factors that the...

Question 2

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

Accepted Answer

The control objective of preventing the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited is directly related to ensuring that recorded acquisitions are for goods and services received, and not for personal expenses of employees or management. Therefore, choice A is the best answer. The other choices do not directly address this control objective.

Question 3

The internal control that requires "new vendors and changes to vendor file be approved" satisfies the objective of

Accepted Answer

The objective of occurrence is to ensure that all recorded transactions actually occurred. Requiring approval for new vendors and changes to vendor files helps ensure that vendors are legitimate and have been properly vetted before being added to the vendor file, which reduces the risk of fictitious vendors being added and transactions being recorded for them.

Question 4

ZyCo has recently converted to a new online accounts payable system.To test that all vendor balances have been converted to the vendor master file (completeness),the auditor would

Accepted Answer

The best choice to test completeness of the vendor balances is to agree vendor file details for each vendor from the old (batch) system to the new (online) system on a test basis. This will ensure that all the vendor balances have been accurately converted to the new system. Conducting cutoff tests for receiving reports and vendor invoices will only ensure accuracy of timing (cut-off) of transactions. Testing programs will ensure that the system functions as designed, but will not directly test completeness of vendor balances.

Question 5

After the vendor master file data has been entered,to best improve internal controls the

Accepted Answer

Independent verification of data entry helps to ensure the accuracy and completeness of the vendor master file data, improving internal controls. Matching the vendor master file data to the accounts payable files and filing new vendor authorization forms sequentially are also important internal control procedures, but they do not directly improve the accuracy of the data entered into the system. Matching transaction file detail to the vendor master file is also important, but it is typically done after the vendor master file data has been entered. Therefore, option C is the best choice.

Question 6

ZyCo has recently converted to a new online accounts payable system.To test that only authorized vendors have been converted to the vendor master file (occurrence),the auditor would

Accepted Answer

The answer of ZyCo has recently converted to a new...

Question 7

Before a new vendor is added into the vendor master file (or the purchasing master file),the company should

Accepted Answer

Conducting a credit check on the new vendor is important to ensure that the vendor has a good financial standing and is capable of delivering goods and services according to the company's requirements. This helps to minimize the risk of doing business with unreliable vendors who may not be able to deliver on their promises. The other options may also be important in the vendor setup process, but conducting a credit check should be a priority.

Question 8

What are the important controls relating to cash disbursements?

Accepted Answer

The answer of What are the important controls relating to...

Question 9

Segregation of duties has an important role in providing for good quality internal controls.Which of the following segregation of duties improve controls over the inventory and distribution cycle?

Accepted Answer

Segregating the duties of authorizing the acquisition of goods and receiving them can prevent fraud and errors in the inventory and distribution cycle. This helps ensure that goods are being received and recorded accurately and that payments are only made for authorized purchases. Option A concerns the purchasing department's responsibility for updating economic order quantity, which is related to inventory management and not directly related to the segregation of duties in the inventory and distribution cycle. Option B refers to accounting staff responsibility for entering vendor invoice details, which is part of accounts payable process rather than the inventory and distribution cycle. Option C refers to the security of the inventory transaction processing systems and does not directly pertain to the segregation of duties.

Question 10

What are the factors that increase inherent risks for the accounts within the acquisition and payment cycle?

Accepted Answer

The answer of What are the factors that increase inherent...

Question 11

To ensure that goods and services acquired are for authorized company purposes,and to help acquire only needed items

Accepted Answer

Proper authorization for acquisitions and changes to the master file ensures that purchases are made for legitimate company needs and purposes, preventing unauthorized or unnecessary acquisitions.

Question 12

The internal control that requires "approval of acquisitions at the proper level" satisfies the objective of

Accepted Answer

The internal control that requires approval of acquisitions at the proper level ensures that the occurrence objective is satisfied, as it verifies that all purchases made by the company are legitimate and authorized.

Question 13

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

Accepted Answer

Attributes sampling is the best choice for tests of controls for acquisitions and cash disbursements. This is because it is used to test whether a control is operating effectively or not, by testing a sample of transactions to determine whether they comply with the control being tested or not. In this audit area, we are interested in testing whether controls around acquisition and cash disbursements are being followed and whether purchases or disbursements are being made in accordance with the company's policies and procedures. Therefore, attributes sampling is the best choice as it allows auditors to check for compliance or deviation from established controls. Variables sampling could be used for substantive testing to estimate the monetary value of errors or misstatements but it is not suitable for tests of controls. Probability-proportional-to-size sampling and block sampling are also not as effective in testing controls, as they are better used for large populations or when transactions have a uniform size.

Question 14

Since the audit of accounts payable generally takes a considerable amount of audit time,effective and properly tested internal controls can significantly reduce audit costs by reducing

Accepted Answer

Effective and properly tested internal controls allow auditors to place reliance on these controls, thereby reducing the need for extensive tests of details of balances. This is because strong internal controls reduce the risk of material misstatements in the financial statements.

Question 15

When processing and recording cash disbursements,it is important to have a method of cancelling the supporting documents to prevent their reuse as support for another cheque at a later time.A common method is to

Accepted Answer

Writing the cheque number and payment date on the supporting documents is a common method of canceling them. This ensures that the same document cannot be used for another payment and helps in keeping track of the payments made. Shredding the documents or transferring them to a bank vault or off-site facility may also work, but they are not practical options for all businesses.

Question 16

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

Accepted Answer

Attachment of the receiving report to the invoice ensures that payments are made only for goods that have been received and that each invoice is matched with its corresponding receiving report, preventing duplicate payments for the same shipment.

Question 17

An important control in the accounts payable and information systems departments is to require that those personnel who record acquisitions do not have access to

Accepted Answer

Separating the duties of recording acquisitions from the access to cash, marketable securities, and other assets helps prevent fraud and errors by ensuring that the person who records transactions does not have the ability to manipulate or misappropriate assets.

Question 18

The internal control objective to determine that "existing acquisition transactions are recorded" describes the objective of

Accepted Answer

The objective to determine that "existing acquisition transactions are recorded" pertains to completeness, which ensures that all transactions that should have been recorded are actually recorded.

Question 19

When automatic purchase orders are generated,to help make sure that goods are ordered for products that the company still needs,the company should

Accepted Answer

Re-order points are the predetermined inventory levels at which new orders need to be placed to maintain inventory levels. Monitoring these points ensures that goods are ordered when needed and not too early or too late. This helps to prevent stockouts and excess inventory. A and D may provide some level of control over the ordering process, but they do not ensure that goods are ordered only when needed. B is not a practical solution as vendors cannot determine when stock needs to be replenished.

Question 20

Because many of the types of errors and irregularities that may be found in the acquisition and payment cycle represent a misstatement of earnings and are of significant concern to the auditor,the tolerable exception rate selected by the auditor for attribute testing of this cycle will be

Accepted Answer

The auditor is concerned with misstatements in the acquisition and payment cycle as they can significantly impact the overall earnings. Therefore, the tolerable exception rate for attribute testing of this cycle should be low.

Quiz 13: Audit of the Acquisition and Payment Cycle