Audit Exam - Ch 8

A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting from the purchasing system? a. Material understatement of accounts payable. 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.

a. Material understatement of accounts payable.

In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for a. Occurrence. b. Completeness. c. Classification. d. Cutoff.

b. Completeness.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? a. Examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable. b. Examine a sample of cash disbursements in the period subsequent to year-end. c. Examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded. d. Examine unusual relationships between monthly accounts payable and recorded purchases.

b. Examine a sample of cash disbursements in the period subsequent to year-end.

A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Clerk 1 - reviews vendor invoices for proper signature approval Clerk 2 - enters vendor invoices into the accounting system and welfare payment terms Clerk 3 - posts entered vendor invoices into the accounts payable ledger for payment and mails checks Treasurer - reviews the vendor invoices and signs each check Which of the following would indicate a weakness in the company's internal control? a. Clerk 1 opens all of the incoming mail. b. Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. c. Clerk 3 mails the checks and remittances after they have been signed. d. The treasurer uses a stamp for signing checks.

c. Clerk 3 mails the checks and remittances after they have been signed.

When auditing account balances of liabilities, auditors are most concerned with management's assertion about a. Existence. b. Rights and obligations. c. Completeness. d. Valuation and allocation.

c. Completeness.

Which of the following would not overstate current-period net income? a. Capitalizing an expenditure that should be expensed. b. Failing to record a liability as an expense. c. Failing to record a check paying on an item in Vouchers Payable. d. All of the above would overstate net income.

c. Failing to record a check paying on an item in Vouchers Payable.

When verifying debits to the perpetual inventory records of a non-manufacturing company, auditors would be most interested in examining a sample of purchase a. Approvals. b. Requisitions. c. Invoices. d. Orders.

c. Invoices.

To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all a. Vendors' invoices. b. Purchase orders. c. Receiving reports. d. Canceled checks.

c. Receiving reports.

Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by a. Comparison of the company name to the approved vendor list by the check signer. b. Recognition of the excess maintenance costs by Curtis's supervisor. c. Refusal by the purchasing department to approve the vendor. d. All of the above.

c. Refusal by the purchasing department to approve the vendor.

Which of the following accounts does not appear in the acquisition and expenditure cycle? a. Cash. b. Purchases returns. c. Sales returns. d. Prepaid insurance.

c. Sales returns.

Which of the following procedures is least likely to be performed before the balance-sheet date? a. Observation of inventory. b. Review of internal control over cash disbursements. c. Search for unrecorded liabilities. d. Confirmation of receivables.

c. Search for unrecorded liabilities.

An audit team would most likely examine the detail support for charges to which of the following accounts? a. Payroll expense. b. Cost of goods sold. c. Supplies expense. d. Legal expense.

d. Legal expense.

A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls would have been least likely to have prevented this erroneous payment? a. The copy of the purchase order sent to the furniture company's receiving department should not have shown an expected quantity. b. Personnel in the furniture company's accounts payable department should compare the receiving report to the purchase invoice before creation of the voucher. c. Personnel in the furniture company's cash disbursements department should compare the check that is prepared to all of the backup documentation. d. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

d. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

Budd, the purchasing agent of 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 cash-on-delivery (COD) 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.

d. Purchase orders.

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time? a. Vouchers should be prepared by individuals who are responsible for signing disbursement checks. b. Disbursement vouchers should be approved by at least two responsible management officials. c. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. d. The official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents.

d. The official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents.