Audit - Ch 11
Controls that ensure the ________ assertion is being met for purchases include accounting for the numerical sequences of purchase orders, receiving reports, and vouchers and matching receiving reports with vendor invoices.
completeness
Controls that ensure the _________ assertion is being met for purchases include accounting for the numerical sequences of purchase orders, receiving reports, and vouchers and matching receiving reports with vendor invoices.
completeness
In addition to the control activities used for the occurrence assertion, accounting for the numerical sequence of checks helps ensure the _________ assertion is met.
completeness
Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account determines the ______ of accounts payable.
completeness
Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account is done to determine the ___________ of accounts payable.
completeness
The major misstatement related to the ______ .assertion is that a cash disbursement is made but not recorded in the entity's records.
completeness
The __ assertion attempts to determine whether all purchase transactions and related accounts payable are recorded in the proper period.
cutoff
The auditor tests the control activities for the __________ assertion by comparing the date on the receiving report with the date on the voucher.
cutoff
If purchases are recorded through the voucher register or purchases journal, the only entries into the cash disbursements journal are ______ to accounts payable and ______ to cash.
debits credits
True or false: Proper segregation of duties for purchasing mean that the individual who can requisition goods should receive the goods but not be responsible for invoice processing.
False Reason: Individuals who can requisition goods should not receive them.
True or false: The auditor can only obtain assurance about the cutoff assertion for purchases by conducting tests of controls, not substantive tests of transactions.
False Reason: The auditor primarily uses substantive testing for cutoff. Sometimes dual purpose tests.
True or false: Substantive analytical procedures are rarely used to evaluate the reasonableness of accounts payable and accrued expenses.
False Reason: They can be useful in identifying misstatements and provide evidence regarding the fairness of the recorded accounts.
An authorized person in a department requests goods with a ______.
purchase requisition
To request goods or services, an authorized individual completes a(n) __________ ___________
purchase requisition
The auditor's test of controls for the __________ assertion involves reperforming the accounts payable clerk's duties on a sample of voucher packets.
accuracy
The potential misstatement related to the ________ assertion is that the payment amount is recorded incorrectly.
accuracy
The important issue in the __________ function of the purchasing process it that the request meets the authorization procedures implemented by the entity.
requisition
The main accounts affected by the auditor's achieved control risk for the purchasing process include ______.
- accrued expenses - accounts payable
If the aggregate misstatement is greater than the tolerable misstatement, the auditor choices are to ______.
- adjust the accounts to reduce the misstatement - qualify the audit report
If purchase transactions that do not occur are recorded ______.
- expenses may be overstated - an incorrect payment will be made - a liability will be recorded
The major issues related to the presentation and disclosure assertion about accounts payable are ______.
- identifying and reclassifying any material debits contained in accounts payable - segregating short-term and long-term payables - ensuring that different types of payables are properly classified
A purchase order ______.
- includes the description, quality and quantity of the goods being purchased - indicates the authorization to purchase the goods or services
Substantive tests of transactions ______.
- may be difficult to distinguish from a test of controls - are often conducted at the same time as tests of controls
Because there are significant differences between how revenue and expenses are treated for GAAP financial statements and tax returns, there are significant differences between the current year tax _________ and the current year income tax ________ on the tax return.
- provision - liability
The person who approved the purchase and the authorization to buy a good or service is included on the ____________ _________
- purchase - order
A purchase transaction usually begins with a(n) ___________ __________ being generated by a department or support function.
- purchase - requisition
To request goods or services, an authorized individual completes a(n) ____________ ____________.
- purchase - requisition
Disclosures that are particularly important for accounts payable are ______.
- purchase commitments - related-party purchases
Possible misstatements due to improper authorization include ______.
- purchase of services at unauthorized prices - purchase of unauthorized goods
A receiving report ______.
- records the receipt of goods - contains the date and description of goods
Proper segregation of duties for purchasing include ______.
- requisitioning from general ledger - receiving from invoice processing - requisitioning from invoice processing
Categories of expenses classified in SFAC 5 are ______.
- systematic expenses - product costs - period costs
True or false: The purchasing system includes returns of goods to suppliers for cash or credit.
True
Substantive analytical procedures are used to examine plausible relationships among _______ ________ and accrued expenses.
accounts payable
The potential misstatement related to the accuracy assertion is that the payment ______.
amount is recorded incorrectly
To ensure proper authorization of cash disbursements, an employee who prepares cash disbursements, should not ______.
approve purchases
The primary control to prevent misstatements due to improper __________ is the use of a schedule or table that stipulates the amount that different levels of employees are allowed to purchase.
authorization
Organizations can control requisitioning authorization by ______.
authorization dollar limits for different levels of employees
A possible misstatement for the accuracy assertion is that purchase transactions may ______.
be recorded at incorrect amounts
Recording purchases in the correct account is evidence regarding the ______ assertion.
classification
Segregating short-term and long-term payables is one of the major issues with respect to presentation and disclosure assertions about ______.
classification
The auditor's concern with proper__________ is that a cash disbursement may be charged to the wrong general ledger account.
classification
Use of a chart of accounts and independent approval and review of the general ledger accounts charged for acquisitions are controls for the ____________ assertion
classification
The auditor should analyze accounts payable misstatements discovered through the application of substantive procedures because these misstatement may provide additional evidence as to the __________ _________
control risk
Controls to ensure that purchase transactions are recorded promptly and in the proper period are controls over ______.
cutoff
Procedures to ensure that prepared cash disbursements are recorded on a timely basis in the cash disbursements journal and the accounts payable support the ______ assertion.
cutoff
Procedures to ensure that prepared cash disbursements are recorded on a timely basis in the cash disbursements journal and the accounts payable support the _________ assertion
cutoff
The auditor's major concern with the ______ assertion is whether the recorded liabilities are valid obligations of the entity.
existence
The auditor's major concern with the ________ assertion is whether the recorded liabilities are valid obligations of the entity.
existence
Because there are significant differences between how revenue and expenses are treated for GAAP financial statements and tax returns, there are significant differences between the current year tax provision and the current year ______.
income tax liability
When compared to accounts receivable confirmations, accounts payable confirmations are used ______ frequently by auditors.
less
Substantive tests may be difficult to distinguish from a test of controls because the specific audit procedure may both test the operation of a control procedure and ______.
monetary misstatement
The auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no payment has actually been made when considering the ___________ assertion
occurrence
If purchase transactions that do not occur are recorded, assets or expenses will be ______.
overstated
For the occurrence assertion, the auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no ______ has actually occurred.
payment
Expenses that are recognized when cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter are referred to as ________ costs
period
Because there are significant differences between how revenue and expenses are treated for GAAP financial statements and tax returns, there are significant differences between the current year tax _______ and the current year income tax __________ on the tax return.
provision liability
The ______ is not usually processed through the purchasing process.
purchase of equipment for credit Reason: This would only be true if the company re-sold equipment as their business
The purchasing department prepares a(n) ______ for the purchase or goods or services from a vendor.
purchase order
In the purchasing process, substantive tests of transactions focus mainly on the ______.
purchases and cash disbursement transactions
To ensure an independent count of goods, the__________ _________ is normally a copy of the purchase order with quantities omitted.
receiving report
Purchase transactions for the acquisition of equipment are subject to the controls included in the purchasing process. If those controls are reliable, the auditor may be able to increase the detection risk for the affected financial statement accounts and therefore ______ the number of substantive procedures needed.
reduce
Two particularly important disclosures for accounts payable and accrued expenses are ______-_______ purchase transactions and _________ ________
related - party purchase commitments
A review of the voucher packets for adequate supporting documents relating liabilities to the entity provides sufficient evidence to support the ______ assertion.
rights and obligations
Because entities seldom have an incentive to record liabilities they are not responsible for, there is little risk related to the assertion of ______.
rights and obligations
A key control over unauthorized cash disbursements is ______.
segregation of duties
Effectively identifying accounts payable and accrual accounts that are misstated and providing evidence regarding the fairness of recorded accounts can be done using _______ _________ procedures
substantive analytical
Accounts payable confirmations may be used as an important source of evidence if ______.
the entity has weak internal control Reason: Confirmations may be important if vendor statements are not available.
The beginning step in the purchase process is usually ______.
the purchase requisition
If the evidence does not support fair presentation, the auditor can adjust the accounts to reduce the misstatement to an amount less than the __________ misstatement or _________ the audit report.
tolerable qualify
If the entity fails to record a purchase that has been made, assets or expenses will be ______, and accounts payable will be ______.
understated; understated
The ______ of individual accounts payable is generally not a difficult assertion to test.
valuation
The tests of details of account balances normally provides sufficient evidence as to the proper ______ of accounts payable.
valuation
