Question 1

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" is concerned with ensuring that recorded transactions actually took place. The internal control objective of determining that recorded acquisitions are for goods and services received helps satisfy this objective by verifying that acquisitions were indeed received and recorded accurately.

Question 2

An auditor has been assigned to perform tests of controls for a client's cash disbursement system. Client files are kept electronically with no paper audit trail. In this case the auditor would need to rely on which of the following audit procedures?
A) Analytical procedures and Inquiry
B) Confirmations and Inquiry
C) Observation and Inquiry
D) Reperformance and Inquiry

Accepted Answer

Since there is no paper audit trail, the auditor cannot rely on reperformance, confirmations, or analytical procedures. The best choice is to rely on observation and inquiry. The auditor can observe the electronic system in action and inquire with the client about the specifics of the system and any controls in place.

Question 3

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. The key controls in this cycle include authorization of purchases, authorization of payments, and timely recording and independent review of transactions.

Question 4

A company's internal control procedures over the acquisition cycle should prevent the preparation of a voucher for goods that have not yet been received. Which of the following is the best procedure to assure vouchers are not prepared for goods not received?
A) purchase order and vendor invoice are matched to the receiving report
B) compare goods received with goods ordered
C) perform sample test counts of items when received
D) compare the requisition for goods with the purchase order

Accepted Answer

The answer of A company's internal control procedures over the...

Question 5

The acquisition and payment cycle typically begins with the initiation of purchase requisition for goods and services from an authorized individual.

Accepted Answer

This is true as the acquisition and payment cycle starts with a purchase requisition being initiated by an authorized individual.

Question 6

Proper authorization for acquisition is useful for management as an internal control procedure, because it:
A) ensures that goods/services are used efficiently by company employees.
B) ensures that goods/services were purchased from approved vendors.
C) ensures that goods/services were purchased according to company policy.
D) ensures that goods/services were purchased at the lowest possible price.

Accepted Answer

Proper authorization for acquisition ensures that goods/services were purchased according to company policy, which helps management maintain control over expenditures and prevents employees from making unauthorized purchases that could be detrimental to the company's finances. While ensuring efficiency, approved vendors, and low prices are important factors, they are not the primary purpose of proper authorization for acquisition.

Question 7

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.
B) tests of controls and tests of transactions.
C) tests of details of balances.
D) analytical procedures and tests of controls.

Accepted Answer

When a client uses perpetual inventory records, the controls over the acquisitions included in the records are normally tested as a part of the tests of controls and tests of transactions. This is because the perpetual inventory system involves continuous recording of inventory, and the controls over acquisitions are crucial for the accuracy of the records. Therefore, testing the controls over acquisitions helps to ensure the accuracy of the perpetual inventory records, which in turn reduces the need for extensive tests of details of balances. Additionally, testing controls over acquisitions also helps to ensure that the company is properly valuing and recording inventory per the applicable accounting standards.

Question 8

A substantive test for accounts payable that would be used to provide evidence regarding the occurrence assertion would be to:
A) agree a sample of vouchers to authorized purchase orders.
B) recalculate the accuracy of the vouchers and the authorized purchase orders.
C) trace vouchers to the client's purchases journal.
D) vouch a sample of vouchers from the cash disbursements register to accounts payable.

Accepted Answer

The answer of A substantive test for accounts payable that...

Question 9

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 10

Receiving reports are normally only used to document the receipt of goods and are not used to document the receipt of services.

Accepted Answer

The answer of Receiving reports are normally only used to...

Question 11

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 is responsible for ensuring that acquisitions are legitimate and that payments are made only for goods or services that have been received and approved. To do this, they should compare the purchase order, receiving report, and vendor's invoice to confirm that the goods or services have been received, that the prices charged are correct, and that any required discounts or allowances have been applied appropriately. Therefore, choice C is the best answer as it includes all the necessary documents for a comprehensive review.

Question 12

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 that should be recorded, are recorded. Failure to record the acquisition of goods means that an occurrence that should have been recorded was missed, thus violating the completeness objective.

Question 13

You have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. You have decided to vouch a sample of entries in the accounts payable master file to supporting documents. Which assertion is this test of controls most likely to support?
A) Accuracy
B) Classification
C) Completeness
D) Occurrence

Accepted Answer

Vouching entries in the accounts payable master file to supporting documents would most likely support the occurrence assertion. This is because it provides evidence that the recorded transactions actually occurred and that the vendor invoices were valid and approved. Accuracy would be tested by comparing recorded amounts to supporting documents, while completeness would be tested by looking at the presence of all necessary information in the master file. Classification would be tested by examining how the entries were categorized in the master file.

Question 14

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 Payables

Accepted Answer

Receiving reports would provide evidence that goods have been received by the company and should be recorded properly in the company's records. Vendor invoices, purchase orders, and cash disbursements for accounts payables may provide evidence for other assertions, but not completeness.

Question 15

An acquisitions transaction file is a computer generated file that includes all information entered into the system regarding acquisition transactions.

Accepted Answer

The statement is true. An acquisitions transaction file is a computer generated file that contains all data related to acquisition transactions that have been entered into the system.

Question 16

Which one of the following duties should not be assigned the purchases 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 answer of Which one of the following duties should...

Question 17

A vendor invoice is normally prepared at the time tangible goods are received and indicates the description of goods, the quantity received, the date received, and other relevant data.

Accepted Answer

The answer of A vendor invoice is normally prepared at...

Question 18

A written purchase order is a contractual document that is:
A) an offer to buy.
B) not enforceable if it is not in writing.
C) a binding agreement between purchaser and vendor.
D) an acceptance of a vendor's catalog offer to sell.

Accepted Answer

A written purchase order is an offer to buy, which becomes a binding contract once accepted by the vendor.

Question 19

A document received from the vendor indicating such things as the description and quantity of goods and services received, price including freight, cash discount terms, and date of billing is called the voucher.

Accepted Answer

The document described is known as an invoice, not a voucher. A voucher is a document used by a company’s accounts payable department to gather and file all of the supporting documents needed to approve the payment of a liability.

Question 20

The accounts payable accounting clerk erroneously recorded the same purchase twice. Which of the following internal control tests would most likely act as a detective control?
A) recalculating the purchases journal
B) tracing from the purchases journal to the general ledger
C) vouching from the general ledger to the purchases journal
D) reconciling the vendor's statements to the accounts payable subsidiary ledger

Accepted Answer

Reconciling the vendor's statements to the accounts payable subsidiary ledger is a detective control because it involves comparing two independent sets of records to identify any discrepancies or errors. In this case, it would help identify the duplicate purchase and allow for corrective action to be taken. The other options (A, B, and C) are all preventative controls designed to identify errors before they occur, rather than detecting them after the fact.

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

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

An auditor has been assigned to perform tests of controls for a client's cash disbursement system. Client files are kept electronically with no paper audit trail. In this case the auditor would need to rely on which of the following audit procedures?

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

A company's internal control procedures over the acquisition cycle should prevent the preparation of a voucher for goods that have not yet been received. Which of the following is the best procedure to assure vouchers are not prepared for goods not received?

The acquisition and payment cycle typically begins with the initiation of purchase requisition for goods and services from an authorized individual.

Proper authorization for acquisition is useful for management as an internal control procedure, because it:

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 substantive test for accounts payable that would be used to provide evidence regarding the occurrence assertion would be to:

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

Receiving reports are normally only used to document the receipt of goods and are not used to document the receipt of services.

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?

You have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. You have decided to vouch a sample of entries in the accounts payable master file to supporting documents. Which assertion is this test of controls most likely to support?

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:

An acquisitions transaction file is a computer generated file that includes all information entered into the system regarding acquisition transactions.

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

A vendor invoice is normally prepared at the time tangible goods are received and indicates the description of goods, the quantity received, the date received, and other relevant data.

A written purchase order is a contractual document that is:

A document received from the vendor indicating such things as the description and quantity of goods and services received, price including freight, cash discount terms, and date of billing is called the voucher.

The accounts payable accounting clerk erroneously recorded the same purchase twice. Which of the following internal control tests would most likely act as a detective control?