Audit Ch. 14

auditors should avoid proposing journal entries for _____ errors

inconsequential

unclaimed wages should not be left for more than a ______ days in the payroll department; preferred to deposit in a special bank account

few

vacation pay should be accrued

for vacation not taken and for future vacation earned during the year

in an effective purchasing system, a stores or inventory control department will prepare and approve the issuance of a purchase requisition that will be sent to the _______ department

purchasing

principal working papers include _______ ______

lead schedules and confirmation requests

in addition to A/P, other items classified as current liabilities include _________ ____ _____

sales tax payable, customer's deposits, and unclaimed wages

in the first audit of a new client, the auditors should review any prior year's income tax returns not yet examined by revenue agents to make sure that there has been no substantial underpayment of taxes that would warrant prestation as a liability

FACT

the auditing steps for accrued liabilities include performing a retrospective analysis of the _______ estimates for evidence of management bias for significant estimates

prior year's

auditors should test the reasonableness of sales tax payable by:

1. examining sales invoices to confirm customers are being charged the correct amount of tax 2. applying the sales tax rate to total taxable sales

Substantive procedures for A/P:

1. preparing a trial balance of A/P and reconciling it to the general ledger 2. confirming A/P

considerations in auditing accrued pension liability include ___ ____ ___ __

1. service cost 2. gains and losses on assets 3. amortization of service costs 4. interest cost

in the audit of small and medium-sized companies, it is customary for the audit engagement to include the preparation of the client's tax returns; can discover ways to reduce tax liability for client

FACT

short-time obligations for services of a continuing nature that accumulate over time are _____ liabilities

accrued

most audit work on accounts payable should be performed ______ the balance sheet date

after

all material payables to _______ parties must be disclosed in the financial statements

related

material amounts payable to _____ parties must be listed separately from trade creditors

related

for most accrued liabilities, the audit approach will emphasize _____

review and test of management's process of developing the estimates

Inherent risks of A/P: 2

risk of PMT of unauthorized payables and the failure to capture all accounts payable 4

analyze unclaimed wages to : 2

1. credits represent all unclaimed wages 2. debits represent only authorized payments to employees

Low control risk for A/P includes the following:

1. serially numbered receiving reports are prepared promptly by the client for all goods received 2. serially numbered vouchers are prepared and recorded in the voucher register 3. Pmts are promptly made on the due dates and immediately recorded in the cash PMTs journal and A/P sub ledger 4. Independent person compares individual accounts in sub ledger to vendor statements and sub ledger to control account

examples of test of controls for the verification of accounts payable include _______ and _______

1. testing IT application controls 2. vouching a sample of posts to the accounts payable control account

good A/P ratios

Purchases/ A/P A/P / total current liabilities

most of the inherent risks of A/P arise from ______ risks faced by management

business

any ______ amounts payable to related parties should be listed separately from amounts payable to trade creditors

material

recording a provision for warranty liabilities is _______ ________

not allowed for tax purposes required for proper financial statement presentation

analytical procedures performed to gain assurance about the overall reasonableness of A/P are ___ and ____

1. comparing amounts owed to individual creditors to balances in prior years 2. computing ratios and comparing them to prior years

potential sources of unrecorded payables include ___ ___ and _____

1. unmatched invoices and unbilled receiving reports 2. vouchers payable entered into the register after the BS date 3. invoices received by the client after the BS date

Auditors may test controls by vouching a sample of postings through the audit trail from the posting to the source document, and in reverse order from the source document to the general ledger

TRUE FACT

when reviewing accrued commissions and bonuses payable, an essential condition is:

authority for the PMT

deposits on contracts and similar advances from customers are recorded as ___ _______ on the balance sheet

current liabilities

____ balances in vendors' accounts should be brought to the attention of the credit and purchasing departments

debit

auditors obtain a trial balance of accounts payable as of the BS date and use this list as a STARTING point for _______ procedures

substantive

auditors should review container deposits shown as refunded to customers to verify _______

they were not stolen by employees

a substantive procedure that auditors perform when the risk of material misstatement of A/P is high is to reconcile accounts payable with monthly statements from _______

vendors

in an effective purchasing system, receiving reports should be sent to the ______ departments x3

store, purchasing, accounts payable

in an effective purchasing system, copies of the purchase order should be sent to departments ______ ____ ______

stores, accounts payable, and receiving

unmatched invoices and unbilled receiving reports are called ____ ____ ________ in a voucher system

work in process

the validity of the amount in the general ledger control account for accounts payable is established by tracing postings to the ____ ______ and cash disbursements journal; before BS date

voucher register

the validity of the amount in the general ledger control account is established by tracing posting to the _____ register and cash ______ journal

voucher; disbursements