Question 1

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because:
A)accrued liabilities usually pertain to services of a continuing nature, while accounts payable are the result of completed transactions.
B)accrued liability balances are less material than accounts payable balances.
C)evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts payable is readily available.
D)accrued liabilities at year-end will become accounts payable during the following year.

Accepted Answer

Accrued liabilities refer to expenses that have been incurred but not yet paid, typically relating to ongoing services or obligations. In contrast, accounts payable are invoices for goods or services that have been received but not yet paid for. Therefore, the audit procedures used to verify accrued liabilities will likely focus on the nature of the expenses and the validity of the obligation, rather than on the verification of invoices or other supporting documentation.

Question 2

The auditor is most likely to verify accrued commissions payable in conjunction with the:
A)sales cutoff review.
B)verification of employees.
C)review of post balance sheet date disbursements.
D)examination of trade accounts payable.

Accepted Answer

Accrued commissions payable are directly related to sales activities. Therefore, the auditor is most likely to verify these in conjunction with the sales cutoff review to ensure that sales and related commissions are recorded in the correct accounting period.

Question 3

Which of the following audit procedures is least likely to detect an unrecorded liability?
A)Analysis and recomputation of interest expense.
B)Analysis and recomputation of depreciation expense.
C)Mailing of standard bank confirmation forms.
D)Reading of the minutes of meetings of the board of directors.

Accepted Answer

Analyzing and recomputing depreciation expense relates to fixed assets and has little influence on liabilities. The other procedures have more relevance to identifying unrecorded liabilities.

Question 4

An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:
A)inquiry and analytical procedures.
B)confirmation and observation.
C)observation and inquiry.
D)analytical procedures and confirmation.

Accepted Answer

Observation and inquiry are the most suitable methods for testing controls when there is no audit trail of documentary evidence. Observation allows the auditor to see the control activity being performed in real-time, while inquiry involves asking knowledgeable persons within the entity about the control activities. These methods can provide evidence of the operational effectiveness of the entity's controls over cash disbursements when documentary evidence is not available.

Question 5

Operating control over the check signature plate normally should be the responsibility of the:
A)Secretary.
B)Chief accountant.
C)Vice President of Finance.
D)Treasurer.

Accepted Answer

The treasurer is typically responsible for maintaining control over the check signature plate, as they oversee the organization's banking and cash management activities. They should ensure that only authorized individuals have access to the signature plate to prevent fraudulent activity.

Question 6

Tests of controls for the occurrence assertion for purchases include all of the following except:
A)evaluating proper segregation of duties.
B)testing a sample of vouchers for an authorized purchase order.
C)testing a sample of vouchers for matching receiving reports.
D)tracing a sample of vouchers to purchases journal.

Accepted Answer

Tests of controls for the occurrence assertion for purchases typically focus on ensuring that purchases recorded in the accounting records actually occurred and are authorized, properly recorded, and complete. Tracing a sample of vouchers to the purchases journal is more related to the completeness assertion (ensuring all purchases that occurred are recorded) rather than the occurrence assertion (ensuring recorded purchases actually occurred).

Question 7

The authority to accept incoming goods in receiving should be based on a(n):
A)vendor's invoice.
B)materials requisition.
C)bill of lading.
D)approved purchase order.

Accepted Answer

The best choice for the authority to accept incoming goods in receiving is an approved purchase order. This is because the purchase order outlines the specific details of the order, including the quantity, price, and description of the goods to be received. Receiving personnel can use the purchase order to verify that the goods received match what was ordered and that they are in good condition. A vendor's invoice, materials requisition, and bill of lading can also provide useful information, but they do not have the same level of detail and are not sufficient on their own to authorize the acceptance of incoming goods.

Question 8

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the checks also:
A)reviews the monthly bank reconciliation.
B)returns the checks to accounts payable.
C)is denied access to the supporting documents.
D)is responsible for mailing the checks.

Accepted Answer

The person who signs the checks is typically responsible for mailing the checks to ensure that checks are sent to the correct parties and to prevent any unauthorized alterations or misuse after signing. This control helps maintain the integrity of the cash disbursement process.

Question 9

For effective internal control over accuracy of transactions, the accounts payable department should compare the information on each vendor's invoice with the:
A)receiving report and the purchase order.
B)receiving report and the voucher.
C)vendor's packing slip and the purchase order.
D)vendor's packing slip and the voucher.

Accepted Answer

The accounts payable department should compare the information on each vendor's invoice with the receiving report and the purchase order to ensure accuracy of transactions. This ensures that the company only pays for goods or services that were actually received and ordered. Comparing with the voucher or packing slip alone may not provide enough information to verify accuracy of the transaction.

Question 10

As an in-charge auditor, you are reviewing a summary of control weaknesses in cash disbursement procedures. Which one of the following weaknesses, standing alone, should cause you the least concern?
A)Checks are signed by only one person.
B)Signed checks are distributed by the controller to approved payees.
C)Treasurer fails to establish validity of names and addresses of check payees.
D)Cash disbursements are made directly out of cash receipts.

Accepted Answer

The answer of As an in-charge auditor, you are reviewing...

Question 11

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of:
A)accuracy.
B)occurrence.
C)cutoff.
D)classification.

Accepted Answer

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year are focused on cutoff. Cutoff tests provide assurance that transactions have been recorded in the correct period, which supports the accuracy of financial statements. However, they also test for the occurrence of transactions, which may lead to the detection of possible errors or fraud.

Question 12

An entity erroneously recorded a large purchase twice. Which of the following internal controls would be most likely to detect this error in a timely and efficient manner?
A)Footing the purchases journal.
B)Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
C)Tracing totals from the purchases journal to the ledger accounts.
D)Sending written quarterly confirmations to all vendors.

Accepted Answer

Reconciling vendors' monthly statements with subsidiary payable ledger accounts will identify any discrepancies between the amounts recorded in the ledger and the amount owed to the vendor. If the purchase was recorded twice, the vendor's statement would show a different amount than what is recorded in the ledger. Footing the purchases journal or tracing totals from the purchases journal to the ledger accounts would not detect the duplicate purchase error, while sending written quarterly confirmations to all vendors may not be timely enough to prevent further errors or catch the error before financial statements are issued.

Question 13

Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the entity's employees?
A)Test footings in the accounts payable ledger.
B)Reconcile unpaid invoices to vendors' statements.
C)Prepare a schedule/listing of accounts payable.
D)Mail confirmations for selected account balances.

Accepted Answer

The preparation of a schedule/listing of accounts payable can be delegated entirely to the entity's employees as it does not involve exercising professional judgement or making decisions about materiality or accuracy. The other procedures listed require at least some level of auditor involvement to ensure that appropriate audit evidence is obtained.

Question 14

An entity's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system?
A)Accounts payable are not materially understated.
B)Authority to incur liabilities is restricted to one designated person.
C)Acquisition of materials is not made from one vendor or one group of vendors.
D)Commitments for all purchases are made only after established competitive bidding procedures are followed.

Accepted Answer

The auditor's primary concern with respect to liabilities resulting from the procurement system is to ensure that accounts payable are not materially understated. This means that the entity has properly recorded all of its liabilities and that there are no unrecorded liabilities that could materially affect the financial statements. B, C, and D may also be important considerations, but they are not the primary concern for the auditor.

Question 15

A voucher:
A)is a bill from the vendor.
B)is a document that records the receipt of goods.
C)is a document that requests goods from an authorized individual in the entity.
D)serves as the basis for recording a vendor's invoice in the purchases journal.

Accepted Answer

A voucher serves as the basis for recording a vendor's invoice in the purchases journal. It provides details such as the date of purchase, vendor name, item description, quantity, and price. The voucher contains all of the necessary information to ensure that the invoice is entered accurately into the accounting system.

Question 16

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?
A)Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports.
B)Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports.
C)Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks.
D)Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Accepted Answer

Option D ensures that every payment made (evidenced by canceled checks) is supported by a receiving report that is dated on or before the check date, confirming that goods were received before payment was issued. This aligns with the control objective of having an approved receiving report accompany every check request for payment, thereby providing assurance that the control is operating effectively.

Question 17

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 and approved by authorized individuals who have no incompatible duties.
B)received, counted, and checked to quantities and amounts on purchase orders and invoices.
C)properly recorded as assets and systematically amortized over the estimated useful life of the supplies.
D)used in the course of business and solely for business purposes during the year under audit.

Accepted Answer

The auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been received, counted, and checked to quantities and amounts on purchase orders and invoices. This ensures that the supplies were actually received and that the quantities and prices are accurate, reducing the risk of overpayment or fraud. While ensuring proper recording and use of the supplies are also important, they are not the primary concern when auditing the purchasing process. The authorization of purchases should also be evaluated, but it is not explicitly stated as the primary concern in this question.

Question 18

An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all:
A)merchandise received.
B)vendors' invoices.
C)canceled checks.
D)receiving reports.

Accepted Answer

The correct answer is B) vendors' invoices. This is because the auditor is testing to ensure that the entity was billed only for merchandise that was actually received. Vendors' invoices represent the requests for payment from the entity and are the direct source to verify against the entity's records of received merchandise.

Question 19

An auditor compares information on canceled checks with information contained in the cash disbursements journal. The objective of this test is to determine that:
A)recorded cash disbursement transactions are properly authorized.
B)proper cash purchase discounts have been recorded.
C)cash disbursements are for goods and services actually received.
D)no discrepancies exist between the data on the checks and the data in the journal.

Accepted Answer

The objective of comparing information on canceled checks with the cash disbursements journal is to ensure accuracy and consistency in the records, verifying that there are no discrepancies between the check details and the journal entries. This helps in maintaining accurate financial records.

Question 20

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
A)Reconcile receiving reports with related cash payments made just prior to year-end.
B)Contrast the ratio of accounts payable to purchases with the prior year's ratio.
C)Vouch a sample of creditor balances to supporting invoices, receiving reports and purchase orders.
D)For cash payments occurring after the balance sheet date, examine the date on the associated receiving report or vendor invoice to determine if it relates to the current audit period.

Accepted Answer

Examining cash payments and their associated documents after the balance sheet date helps identify liabilities that existed at year-end but were not recorded, thus addressing the search for unrecorded payables.

Quiz 11: Auditing the Purchasing Process

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because:

The auditor is most likely to verify accrued commissions payable in conjunction with the:

Which of the following audit procedures is least likely to detect an unrecorded liability?

An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:

Operating control over the check signature plate normally should be the responsibility of the:

Tests of controls for the occurrence assertion for purchases include all of the following except:

The authority to accept incoming goods in receiving should be based on a(n) :

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the checks also:

For effective internal control over accuracy of transactions, the accounts payable department should compare the information on each vendor's invoice with the:

As an in-charge auditor, you are reviewing a summary of control weaknesses in cash disbursement procedures. Which one of the following weaknesses, standing alone, should cause you the least concern?

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of:

An entity erroneously recorded a large purchase twice. Which of the following internal controls would be most likely to detect this error in a timely and efficient manner?

Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the entity's employees?

An entity's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system?

A voucher:

An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively?

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:

An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all:

An auditor compares information on canceled checks with information contained in the cash disbursements journal. The objective of this test is to determine that:

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?