Question 1

In determining that the accounts payable cutoff is correct,it is essential that the cutoff tests be coordinated with the

Accepted Answer

The observation of inventory is crucial for ensuring that the accounts payable cutoff is correct, as it helps verify that purchases and related liabilities are recorded in the correct accounting period.

Question 2

The test of details of balances procedure to "inspect the accounts payable trial balance and master file for related parties,notes,or other interest-bearing liabilities" satisfies the objective of

Accepted Answer

Inspecting the accounts payable trial balance and master file for related parties, notes, or other interest-bearing liabilities helps ensure that liabilities are properly classified in the financial statements, satisfying the objective of classification.

Question 3

The main focus taken by the auditor in verifying liability balances is on the discovery of

Accepted Answer

The main focus taken by the auditor in verifying liability balances is on the discovery of understated or omitted liabilities, as these can have a significant impact on the financial statements. Overstated or extraneous liabilities may also be important to identify, but they are typically more easily detected by the auditor and are less likely to have a material impact on the financial statements. Liabilities posted to the wrong account may also be important to identify, but this is generally a less significant concern for auditors than ensuring that all material liabilities have been properly recorded.

Question 4

The control objective associated with selecting a sample of receiving reports and tracing them to the perpetual inventory records is

Accepted Answer

Tracing receiving reports to perpetual inventory records ensures that all received items are recorded, addressing the control objective of completeness. This process verifies that the inventory records are complete by ensuring all items that should be recorded are indeed recorded.

Question 5

Comparing expenses to prior years is an effective analytical procedure for accounts payable because expenses from year to year are

Accepted Answer

Expenses from year to year are generally relatively stable, making it easier to spot significant deviations or anomalies when comparing current expenses to those of prior years. This stability aids in the effectiveness of using analytical procedures for accounts payable.

Question 6

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed.If the acquisition is included in accounts payable and purchases,but excluded from inventory,the result

Accepted Answer

The inventory is included in accounts payable and purchases but not in inventory, leading to higher expenses and lower net earnings.

Question 7

In assessing control risk for purchases,an auditor vouches a sample of entries in the accounts payable trial balance to the supporting documents.Which account assertion would this test of controls most likely support?

Accepted Answer

Vouching a sample of entries in the accounts payable trial balance to supporting documents would most likely support the existence and occurrence assertion, as it provides evidence that the recorded payables actually exist and that the underlying transactions did occur. It provides assurance that the liabilities are not overstated, understated or fictitious. Completeness assertion would be tested by vouching supplier invoices and ensuring all such invoices are recorded. Valuation and Allocation would be more likely to be tested through other procedures such as confirmation of liabilities with the creditors, or by computing the accruals. Presentation and disclosure assertion would be tested by checking whether the payables are properly classified on the financial statements and that the notes provide adequate disclosure of payables.

Question 8

What are the common key controls relating to acquisitions?

Accepted Answer

The answer of What are the common key controls relating...

Question 9

Which of the following controls help to ensure that the receipt of raw materials for inventory is recorded in the correct period?

Accepted Answer

The answer of Which of the following controls help to...

Question 10

The test of transactions that requires the recomputing of cash discounts satisfies the objective of

Accepted Answer

Recomputing cash discounts ensures that the discount was accurately calculated for the transaction. Therefore, it satisfies the objective of accuracy in testing transactions.

Question 11

The purpose of the audit procedure to "trace receiving reports issued before year-end to related vendors' invoices" is to determine that all

Accepted Answer

The purpose of tracing receiving reports to vendors' invoices is to ensure that all merchandise received before year-end is included in accounts payable. This helps to ensure that the financial statements reflect a complete and accurate picture of the company's liabilities. It is not necessarily related to inventory, whether merchandise was received, or whether invoices have been paid.

Question 12

The control test that requires "the auditor to compare recorded transactions in the acquisitions journal with the vendor's invoice,receiving report,and other supporting documentation" satisfies the objective of

Accepted Answer

This control test ensures that the transactions recorded in the acquisitions journal are accurate by verifying them against the vendor's invoice, receiving report, and other supporting documentation. It checks for the correctness of the amount and other data related to the transactions, thus satisfying the objective of accuracy.

Question 13

The internal control that requires receiving reports to be prenumbered and accounted for satisfies the objective of

Accepted Answer

The internal control that requires receiving reports to be prenumbered and accounted for satisfies the objective of completeness, as it ensures that all reports that are supposed to be received are actually received and accounted for. Prenumbering of reports helps to ensure that no report is missed or duplicated in the process.

Question 14

State each of the five specific transaction-related audit objectives for acquisitions and,for each objective,describe one common test of transactions.

Accepted Answer

The answer of State each of the five specific transaction-related...

Question 15

The statement that all purchase orders must be supported by properly approved purchase requisitions is a specific example of which general objective?

Accepted Answer

The statement refers to the authorization objective, which ensures that all transactions are properly authorized before they are executed. It is important to have purchase requisitions approved before creating purchase orders to ensure that the company only incurs expenses that are necessary and authorized, and to prevent unauthorized transactions.

Question 16

The purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to

Accepted Answer

This audit procedure is designed to identify payments made after the balance sheet date that should have been included as liabilities in the current period. By examining the underlying documentation, auditors can determine whether these subsequent cash disbursements represent liabilities at the balance sheet date, and whether they were properly recorded in the subsequent period. This helps to ensure the completeness and accuracy of the financial statements. Therefore, option C is the best choice.

Question 17

The internal control that requires an "independent verification of calculations and amounts" satisfies the objective of

Accepted Answer

Independent verification of calculations and amounts checks for accuracy in financial statements by ensuring the numbers are correct. This internal control helps detect errors and reduce the risk of misstatements.

Question 18

The analytical procedure that requires the auditor to "inspect the list of accounts payable for unusual or non-vendor payables" would have the best chance of discovering which possible error?

Accepted Answer

This procedure is specifically designed to identify payables that do not belong to regular trade vendors, which could indicate a classification error for non-trade liabilities.

Question 19

An auditor wants to perform tests of controls on a client's cash disbursement procedures.If the control procedures leave no audit trail or documentary evidence,the auditor is most likely to test the procedures by

Accepted Answer

If the control procedures leave no audit trail or documentary evidence, the auditor can only test them through observation and inquiry. The auditor can observe the client's employees performing certain tasks related to the cash disbursement procedures and inquire about the procedures followed to ensure that they are adequate to prevent or detect errors or fraud. Confirmation and analytical procedures require documentary evidence or data, which is not available in this scenario.

Question 20

The statement that items on the accounts payable register must be supported by a completed voucher package containing a services purchase order and evidence the service was provided is a specific example of which control objective?

Accepted Answer

The control objective described in the statement is validity, as it ensures that transactions on the accounts payable register are valid and supported by proper documentation showing evidence of the service provided. Accuracy and completeness are also important control objectives in accounts payable, but they are not specifically addressed in the given statement. Presentation and disclosure relate to the proper reporting and disclosure of financial information, which is not directly relevant to the control objective described in the statement.

Quiz 13: Audit of the Acquisition and Payment Cycle