Question 1

When reviewing the controls and procedures in the acquisition and payment cycle,
A) companies cannot record the liability for the acquisition until the invoice is received from the vendor.
B) the purchasing department has the responsibility for verifying for appropriateness of the acquisition.
C) personnel who record the acquisitions should not have access to cash or other assets.
D) the accounts payable department should account for all receiving reports to assure that the occurrence objective is satisfied.

Accepted Answer

Segregation of duties is a key control in the acquisition and payment cycle. Personnel who record acquisitions should not have access to cash or other assets to prevent fraud or errors.

Question 2

The auditor's internal control objective to determine that "recorded acquisitions are for goods and services received" satisfies the audit objective of
A) accuracy.
B) occurrence.
C) authorization.
D) completeness.

Accepted Answer

The audit objective of "occurrence" relates to ensuring that recorded transactions actually occurred. The internal control objective of verifying that recorded acquisitions are for goods and services received align with this objective, as it confirms that the recorded transaction actually occurred and relates to a real purchase of goods or services.

Question 3

Which one of the following duties should not be assigned to the purchasing department?
A) finding the lowest cost vendor
B) reviewing vendors' catalog descriptions and prices for standardized items
C) designing the purchase order form
D) authorizing the acquisition of goods

Accepted Answer

The primary responsibility of the purchasing department is to find vendors, negotiate contracts, and ensure the timely supply of goods and materials. Authorizing the acquisition of goods typically falls under the purview of finance or management, as it involves financial commitment and strategic decision-making.

Question 4

Which of the following is not an accurate statement regarding the acquisition and payment cycle?
A) The personnel in the receiving department should be independent of the storeroom personnel.
B) Goods received should be physically controlled from the time of their receipt until their use or disposal.
C) Accounting records should transfer responsibility for the goods each time they are moved.
D) The accounting department should be responsible for receiving goods and preparing the receiving report.

Accepted Answer

The accounting department should not be responsible for receiving goods as it creates a lack of segregation of duties. The receiving department should be responsible for physically receiving the goods, and the accounting department should record the transaction and manage the payment process.

Question 5

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 6

Which of the following is not a key control in the acquisition and payment cycle?
A) authorization of purchases
B) authorization of credit
C) timely recording and independent review of transactions
D) authorization of payments

Accepted Answer

Authorization of credit is not a key control in the acquisition and payment cycle, as it pertains more to the sales and collection cycle. The other options listed are all key controls within the acquisition and payment cycle.

Question 7

The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the
A) vendor's invoice and the receiving report.
B) vendor's invoice and the purchase requisition.
C) purchase order, receiving report, and vendor's invoice.
D) purchase requisition, purchase order, and receiving report.

Accepted Answer

The accounts payable department needs to compare the purchase order, receiving report, and vendor's invoice to ensure that the acquisition is valid and should be paid. Comparing only the vendor's invoice and purchase requisition (option B) or the vendor's invoice and receiving report (option A) doesn't provide a complete picture of the acquisition. Option D includes the purchase requisition, which is not typically compared by the accounts payable department - this is usually done by the purchasing department.

Question 8

Failure to record the acquisition of goods is a violation of which audit objective?
A) accuracy
B) occurrence
C) authorization
D) completeness

Accepted Answer

The completeness audit objective requires that all transactions and events are recorded in the financial statements. Failure to record the acquisition of goods means that the transaction has not been completely recorded and therefore violates the completeness objective.

Question 9

A written purchase order is a contractual document that is
A) an offer to buy goods or services.
B) not enforceable if it is not in writing.
C) prepared by the receiving department.
D) an acceptance of a vendor's catalog offer to sell.

Accepted Answer

A purchase order is a document that a buyer sends to a seller, offering to buy goods or services at an agreed-upon price. It is essentially a contract between the buyer and the seller. So, the correct option is A) an offer to buy goods or services.

Question 10

A substantive test of transactions for acquisitions that would be used to provide evidence regarding the occurrence assertion would be to
A) compare the classification with the chart of accounts by referring to vendors' invoices.
B) recompute the clerical accuracy on the vendors' invoices.
C) review the acquisitions journal for large or unusual amounts.
D) trace from a file of receiving reports to the acquisition journal.

Accepted Answer

The answer of A substantive test of transactions for acquisitions...

Question 11

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 is typically responsible for signing checks as they are the individual who holds the financial responsibility of the organization. This helps ensure that only authorized payments are made, and that the company's funds are being used appropriately.

Question 12

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 13

An auditor is gathering evidence on the completeness assertion. To do so, she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all
A) vendor invoices.
B) purchase orders.
C) receiving reports.
D) cash disbursements for accounts payable.

Accepted Answer

The completeness assertion ensures that all transactions and events that should have been recorded have been recorded. To test this assertion, the auditor would want to verify that all goods received by the company have been properly recorded. The best document population for this test would be receiving reports, as they would provide evidence that goods have been received by the company. Vendor invoices, purchase orders, and cash disbursements would not necessarily provide evidence of completeness of goods received.

Question 14

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 internal controls for accounts payable would reduce the risk of material misstatement in the account, therefore reducing the need for substantive testing of balances. However, there may still be a need for some level of substantive testing to ensure the accuracy and completeness of the balances.

Question 15

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

The tolerable exception rate is the maximum rate of errors or exceptions that the auditor is willing to accept without modifying their opinion on the accuracy of the financial statements. In the acquisition and payment cycle, the risk of fraud and financial misstatement is typically high, so the auditor would set the tolerable exception rate at a low level to minimize the risk of undetected errors or fraud.

Question 16

When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the
A) tests of controls for acquisitions.
B) tests of controls and substantive tests of transactions for acquisitions.
C) tests of details of balances for acquisitions.
D) analytical procedures and tests of controls for acquisitions.

Accepted Answer

The controls over the acquisitions included in perpetual inventory records are normally tested as a part of the tests of controls and substantive tests of transactions for acquisitions. These tests are necessary to ensure that the acquisitions are accurately recorded in the perpetual inventory records, which will then form the basis for the tests of details of balances for inventory. If the auditor believes that the records are accurate, then the tests of details of balances for inventory can be significantly reduced, but the tests of controls and substantive tests of transactions must still be performed to ensure the accuracy of the records. Option B covers both the tests of controls and substantive tests of transactions, which is the correct choice.

Question 17

The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of
A) accuracy.
B) existence.
C) completeness.
D) posting and summarization.

Accepted Answer

The internal control of prenumbering checks and accounting for them ensures that all transactions are recorded and none are missing, which satisfies the objective of completeness. This helps in ensuring that all checks issued are accounted for, preventing any from being overlooked or omitted from the records.

Question 18

A key internal control over the acquisition cycle is to ensure that the company requires recording transactions as soon as possible after the goods and services have been received. This satisfies the transaction-related audit objective of
A) accuracy.
B) completeness.
C) timing.
D) occurrence.

Accepted Answer

The key internal control mentioned is related to the timing aspect of the acquisition cycle, which means ensuring transactions are recorded promptly after goods and services have been received. This satisfies the timing-related audit objective.

Question 19

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 for each voucher in the accounts payable department is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received. This ensures that the goods were received and the vendor's invoice matches the purchase order and the receiving report. Counting goods upon receipt in the storeroom, comparing goods received with goods requisitioned in the receiving department, and verifying vouchers for accuracy and approval in the internal audit department are all important control procedures but not as effective as matching the purchase order, receiving report, and vendor's invoice for each voucher in the accounts payable department.

Question 20

The controls over acquisitions included in the perpetual inventory records are normally tested as a part of the test of controls and substantive tests of transactions for the sales and collection cycle.

Accepted Answer

The answer of The controls over acquisitions included in the...

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

When reviewing the controls and procedures in the acquisition and payment cycle,

The auditor's internal control objective to determine that "recorded acquisitions are for goods and services received" satisfies the audit objective of

Which one of the following duties should not be assigned to the purchasing department?

Which of the following is not an accurate statement regarding the acquisition and payment cycle?

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

Which of the following is not a key control in the acquisition and payment cycle?

The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the

Failure to record the acquisition of goods is a violation of which audit objective?

A written purchase order is a contractual document that is

A substantive test of transactions for acquisitions that would be used to provide evidence regarding the occurrence assertion would be to

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

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

An auditor is gathering evidence on the completeness assertion. To do so, she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all

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

When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the

The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of

A key internal control over the acquisition cycle is to ensure that the company requires recording transactions as soon as possible after the goods and services have been received. This satisfies the transaction-related audit objective of

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?

The controls over acquisitions included in the perpetual inventory records are normally tested as a part of the test of controls and substantive tests of transactions for the sales and collection cycle.