Question 1

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

The matching of the supplier's invoice, the purchase order, and the receiving report is a crucial step in the accounts payable process which ensures that the company is being charged for the correct items that have been received. This responsibility falls under the purview of the general accounting function, which is responsible for processing and recording financial transactions. The warehouse receiving function is responsible for physically receiving and inspecting goods, the purchasing function is responsible for preparing purchase orders, and the treasury function is responsible for managing cash and other financial assets.

Question 2

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

Accepted Answer

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Question 3

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

Examining the sequence of vouchers is least useful in assessing the transaction-related audit objective related to occurrence because it only provides evidence that documents are being recorded in order, but does not provide direct evidence that the transactions actually occurred. The other choices (A, B, and D) are all more useful in assessing occurrence because they provide direct evidence of the transaction's existence and validity.

Question 4

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 under conditions of effective internal control as they are responsible for the financial management of the organization and have the authority to disburse funds. The purchasing agent and accounts payable clerk have a conflict of interest in signing checks as they are responsible for making purchases and processing payments, respectively. The person preparing the checks may also have a conflict of interest and should not be the sole signer of checks.

Question 5

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 objective of completeness is met when all transactions that should have been recorded are indeed recorded. Reconciling recorded cash disbursements with the cash disbursements on the bank statement ensures that all cash disbursements have been recorded and are included in the financial statements, thus satisfying the completeness objective.

Question 6

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

Accepted Answer

When controls are operating effectively, auditors can rely on them and spend less time testing transactions and balances, resulting in significant audit efficiencies. Therefore, the statement is true.

Question 7

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 should be based on the purchase order from the purchasing department, as this document specifies the quantity, description, and other details of the goods ordered. The vendor invoice and statement can be used to verify the cost and payment terms, but they do not authorize the acceptance of goods. The requisition request is used to initiate the purchasing process, but it is not sufficient for accepting goods in the receiving department.

Question 8

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 9

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

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Question 10

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

Setting the tolerable exception rate at a low level will allow the auditor to detect even small errors or irregularities in the transactions being tested. This is important in the acquisition and payment cycle, where errors or irregularities can result in financial losses for the company. A higher level of tolerable exception rate would increase the risk of material misstatement going undetected, which could impact the auditor's opinion on the financial statements. Therefore, a low tolerable exception rate is appropriate for this cycle.

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

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Question 12

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

Attachment of the receiving report to the disbursement report would ensure that payments are made only after verifying the receipt of the goods or services. This would prevent duplicate payments as the receiving report would show that the goods were already paid for. Prenumbering of disbursement vouchers and receiving reports may help in detecting the duplicate payment but wouldn't necessarily prevent it. The use of a limit or reasonableness test is a preventative control to ensure that payment amounts are within predetermined limits or reasonable range, but it wouldn't detect a duplicative payment.

Question 13

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 of preventing the inclusion of expenses that benefit management or employees rather than the entity being audited is related to ensuring that recorded acquisitions are for goods and services received. This control helps to prevent fraudulent or inappropriate expenses from being recorded as legitimate business expenses. Therefore, the answer is D.

Question 14

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 that payments are accurate and valid. Approving the purchase orders and supervising the preparation of the receiving report are responsibilities of other departments. Having the authority to sign checks can create a conflict of interest and is not recommended for effective internal control.

Question 15

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

Accepted Answer

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Question 16

What are the three most important controls over cash disbursements?

Accepted Answer

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Question 17

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 for acquisitions and cash disbursements. This is because attributes sampling is used to test the effectiveness of internal controls, which is the primary focus of tests of controls, and to determine the occurrence or non-occurrence of specific transactions, which is the objective of substantive tests of transactions. Block sampling, variables sampling, and probability proportional to size sampling are generally used for tests of details of balances, which are not the primary focus in this audit area.

Question 18

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

Effective controls in accounts payable reduce the risk of material misstatement in the balance. Therefore, the need for substantive testing of balances for accounts payable can be reduced, but not eliminated completely. Other substantive testing procedures may still be necessary to obtain sufficient audit evidence.

Question 19

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.

Question 20

The audit procedure "Examine canceled check for authorized signature, proper endorsement, and cancellation by the bank" is used to test the occurrence objective for cash disbursements.

Accepted Answer

The answer of The audit procedure "Examine canceled check for...

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

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

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

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

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

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

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

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

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

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?

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

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:

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:

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

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?

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:

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:

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:

The audit procedure "Examine canceled check for authorized signature, proper endorsement, and cancellation by the bank" is used to test the occurrence objective for cash disbursements.