Question 1

Substantive procedures to examine the occurrence assertion for accounts payable include
A) Selecting a sample of vouchers and agreeing them to authorized purchase orders.
B) Selecting a sample of vouchers and tracing them to the purchases journal.
C) Comparing dates on vouchers to dates in the purchases journal.
D) Recomputing the mathematical accuracy of a sample of vendor invoices.

Accepted Answer

Substantive procedures for the occurrence assertion aim to verify that recorded transactions actually occurred. Selecting a sample of vouchers and agreeing them to authorized purchase orders helps confirm that the recorded liabilities are valid and supported by actual purchase orders, thus addressing the occurrence assertion.

Question 2

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is
A) Supported by a vendor's invoice.
B) Stamped "paid" by the check signer.
C) Prenumbered and accounted for.
D) Approved for authorized purchases.

Accepted Answer

Stamping vouchers as "paid" helps prevent duplicate payments by indicating that the voucher has already been processed.

Question 3

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of
A) Existence.
B) Rights and obligations.
C) Completeness.
D) Valuation and allocation.

Accepted Answer

In auditing accounts payable, the auditor's primary concern would be to ensure that all recorded payables are complete, meaning that they represent all obligations of the company as of the reporting date. The auditor would verify the completeness of payables by examining supporting documentation, such as vendor invoices and purchase orders, and by reconciling the total payables balance to the general ledger. The other assertions (existence, rights and obligations, and valuation and allocation) may also be relevant to auditing accounts payable, but completeness is the most important in this case.

Question 4

Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over
A) Purchase requisitions.
B) Cash receipts.
C) Perpetual inventory records.
D) Purchase orders.

Accepted Answer

Budd likely exploited weaknesses in the internal control over purchase orders to arrange for deliveries directly to his relative's store, bypassing the usual company procedures.

Question 5

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
A) Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.
B) Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance.
C) Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.
D) Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions.

Accepted Answer

Vouching a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices is a procedure aimed at identifying liabilities that were incurred before the end of the year but not recorded until after. This helps in ensuring that all liabilities are recorded in the period in which they are incurred, thus adhering to the accrual basis of accounting.

Question 6

An examination of the balance in the accounts payable account is ordinarily not designed to
A) Determine that the amounts represent obligations of the company.
B) Verify that accounts payable were properly authorized.
C) Ascertain the reasonableness of recorded liabilities.
D) Determine that all existing liabilities at the balance sheet date have been recorded.

Accepted Answer

The examination of the balance in the accounts payable account is primarily designed to verify that accounts payable were properly authorized, not to determine the existence or recording of liabilities. The other answer choices are also important objectives of the accounts payable examination, but B is the best answer because it directly relates to the verification of proper approval and authorization.

Question 7

Which of the following procedures would an auditor least likely perform before the balance sheet date?
A) Assessment of inherent risk.
B) Observation of merchandise inventory.
C) Assessment of control risk.
D) Identification of related parties.

Accepted Answer

Observing merchandise inventory is typically done closer to the balance sheet date to ensure that the inventory on the balance sheet is accurate. The other procedures listed (assessment of inherent risk, assessment of control risk, identification of related parties) are typically performed earlier in the audit process.

Question 8

Which of the following control activities is not usually performed in the accounts payable department?
A) Determining the mathematical accuracy of the vendor's invoice.
B) Having an authorized person approve the voucher.
C) Controlling the mailing of the check and remittance advice.
D) Matching the receiving report with the purchase order.

Accepted Answer

Controlling the mailing of the check and remittance advice is typically a function of the treasury or cash disbursements department, not the accounts payable department. The accounts payable department focuses on verifying and processing vendor invoices, not handling outgoing payments directly.

Question 9

An entity's internal control requires that for every check request there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all
A) Purchase orders.
B) Canceled checks.
C) Receiving reports.
D) Approved vouchers.

Accepted Answer

The auditor would select from canceled checks to verify that each check issued corresponds to an approved voucher, ensuring that no unauthorized expenditures have been made.

Question 10

Substantive procedures to examine the completeness assertion for accounts payable include
A) Selecting a sample of vouchers and agreeing them to authorized purchase orders.
B) Selecting a sample of vouchers and tracing them to the purchases journal.
C) Comparing dates on vouchers to dates in the purchases journal.
D) Recomputing the mathematical accuracy of a sample of vendor invoices.

Accepted Answer

Selecting a sample of vouchers and tracing them to the purchases journal would help ensure that all invoices have been recorded and included in the accounts payable balance. This procedure helps examine the completeness assertion. Selecting a sample of vouchers and agreeing them to authorized purchase orders (A) only ensures that the purchases were authorized, not necessarily that all purchases have been recorded. Comparing dates on vouchers to dates in the purchases journal (C) may help identify timing differences but does not necessarily ensure completeness. Recomputing the mathematical accuracy of a sample of vendor invoices (D) helps ensure accuracy, not completeness.

Question 11

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable?
A) Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.
B) Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to search for unrecorded vendor's invoices.
C) Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.
D) Confirming accounts payable balances with known suppliers who have zero balances.

Accepted Answer

Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports is a substantive procedure that an auditor would perform to verify the existence of recorded accounts payable. This involves tracing selected recorded accounts payable transactions to supporting documentation such as purchase orders and receiving reports to ensure that the payables actually existed and were accurately recorded. Option A is a procedure to verify the completeness of recorded purchase transactions, not the existence of accounts payable. Option B is a procedure to test for the completeness of accounts payable, not the existence. Option D is a test of details of balances procedure and does not verify the existence of recorded accounts payable.

Question 12

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive procedure most likely was to
A) Identify unusually large purchases that should be investigated further.
B) Verify that cash disbursements were for goods actually received.
C) Determine that purchases were properly recorded.
D) Test whether payments were for goods actually ordered.

Accepted Answer

The procedure of tracing purchase orders and receiving reports to the purchases journal and cash disbursements journal is primarily aimed at ensuring that all purchases are properly recorded in the accounting records.

Question 13

When searching for unrecorded liabilities at year-end, the population identified for sampling would be
A) Cash receipts from related parties recorded before year-end.
B) Creditors whose accounts appear on a subsidiary trial balance of accounts payable.
C) Cash disbursements recorded in the period subsequent to year-end.
D) Invoices dated a few days before and after year-end.

Accepted Answer

Cash disbursements recorded after year-end are reviewed to identify any liabilities that existed at year-end but were not recorded, ensuring completeness of liabilities.

Question 14

Substantive procedures to examine the cutoff assertion for accounts payable include
A) Selecting a sample of vouchers and agreeing them to authorized purchase orders.
B) Selecting a sample of vouchers and agreeing them to the purchases journal.
C) Selecting a sample of receiving reports around year-end and comparing dates on related vouchers to dates in the purchases journal.
D) Recomputing the mathematical accuracy of a sample of vendor invoices.

Accepted Answer

Substantive procedures to examine the cutoff assertion for accounts payable involve evaluating the accuracy of the timing of recorded transactions. Option A and B focus on the authorization of payments and may not adequately address the cutoff assertion. Option D only examines mathematical accuracy and does not address cutoff. Option C involves selecting a sample of receiving reports around year-end and comparing dates on related vouchers to dates in the purchases journal, which provides evidence of cutoff accuracy. Therefore, option C is the best choice.

Question 15

When an auditor selects a sample of items from the vouchers payable register for the last month of the period under audit and traces these items to underlying documents, the auditor is gathering evidence primarily in support of the assertion that
A) Recorded obligations were paid.
B) Incurred obligations were recorded in the correct period.
C) Recorded obligations were valid.
D) Cash disbursements were recorded as incurred obligations.

Accepted Answer

Recorded obligations were valid.

Question 16

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 appropriate when there is no documentary evidence, as they involve watching the process and asking questions to understand the controls in place.

Question 17

Accounts payable confirmations are used to test
A) Both the existence and completeness audit assertions.
B) Only the existence audit assertion.
C) Only the completeness audit assertion.
D) Either existence or completeness, depending upon the response rate.

Accepted Answer

Accounts payable confirmations are used to test both the existence and completeness audit assertions. The existence assertion is tested by confirming that the accounts payable balances are owed to the company by verifying the amounts with the creditors. The completeness assertion is tested by confirming that all of the accounts payable balances are included in the confirmation request and that any differences or discrepancies are investigated.

Question 18

If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to
A) Primarily vendors with large accounts payable balances.
B) Primarily vendors with small or zero accounts payable balances.
C) All vendors.
D) A random sample of all vendors.

Accepted Answer

Sending confirmations to vendors with small or zero balances helps ensure that all liabilities are recorded, addressing the completeness assertion.

Question 19

Purchase cutoff procedures should be designed to test whether or not all inventory
A) Purchased and received before the year-end was recorded before year-end.
B) On the year-end balance sheet was carried at lower of cost or market.
C) On the year-end balance sheet was paid for by the company.
D) Owned by the company is in the possession of the company.

Accepted Answer

Purchase cutoff procedures are designed to ensure that all inventory, which is purchased and received before year-end, is recorded before year-end. This helps in ensuring the completeness and accuracy of the financial statements. The other options (B, C, and D) may also be important, but they are not specifically related to purchase cutoff procedures.

Question 20

Which of the following is the most effective control activity to detect vouchers prepared for the payment of goods that were not received?
A) Counting of goods upon receipt in the storeroom.
B) Matching of purchase order, receiving report, and vendor invoice for each voucher in the accounts payable department.
C) Comparison of goods received with goods requisitioned in the receiving department.
D) Verification of vouchers for accuracy and approval in the internal audit department.

Accepted Answer

Matching of purchase order, receiving report, and vendor invoice for each voucher in the accounts payable department is the most effective control activity to detect vouchers prepared for the payment of goods that were not received. This ensures that the goods have been received and the invoice matches the purchase order and receiving report. Counting goods upon receipt in the storeroom, comparison of goods received with goods requisitioned in the receiving department, and verification of vouchers for accuracy and approval in the internal audit department are all important control activities, but they do not directly address the issue of detecting vouchers for goods that were not received.

Quiz 11: Auditing the Purchasing Process

Substantive procedures to examine the occurrence assertion for accounts payable include

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of

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

An examination of the balance in the accounts payable account is ordinarily not designed to

Which of the following procedures would an auditor least likely perform before the balance sheet date?

Which of the following control activities is not usually performed in the accounts payable department?

Substantive procedures to examine the completeness assertion for accounts payable include

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable?

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive procedure most likely was to

When searching for unrecorded liabilities at year-end, the population identified for sampling would be

Substantive procedures to examine the cutoff assertion for accounts payable include

When an auditor selects a sample of items from the vouchers payable register for the last month of the period under audit and traces these items to underlying documents, the auditor is gathering evidence primarily in support of the assertion that

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

Accounts payable confirmations are used to test

If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to

Purchase cutoff procedures should be designed to test whether or not all inventory

Which of the following is the most effective control activity to detect vouchers prepared for the payment of goods that were not received?