Ch 14 Accounts Payable and Other Liabilities

"Accounts receivable summarized by date of most recent purchase."

Replace with "Accounts receivable aged by date due."

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?

Examine selected cash disbursements in the period subsequent to year-end.

"Management's review of receivables from officers."

Replace with "Copy of loan agreement with Mr. Best.

"Invoices supporting depreciation expense for the year."

Replace with "Schedule of details of depreciation expense calculation for 20X5."

"Detailed analysis and reconciliation of each unpaid account payable at year-end."

Replace with "Trial balance of accounts payable at the balance sheet date."

Auditors often obtain written __________ from management regarding the existence of unrecorded payables.

Representations

Establish the completeness of recorded accounts payable.

Vouch purchases recorded after year-end.

Auditors need to consider _____terms for determining ownership and whether a liability should be recorded.

shipping

Accounts payable confirmations are ordinarily sent to suppliers with whom the client has done the most business. This is because the largest potential for an understatement may exist due to the client having established high levels of credit. A sample of other accounts will ordinarily also be selected.

Accounts payable confirmations are ordinarily sent to suppliers with whom the client has done the most business. This is because the largest potential for an understatement may exist due to the client having established high levels of credit. A sample of other accounts will ordinarily also be selected.

Amount of expense incurred on debt but not charged yet by bank

Accrued Interest

Amount estimated to be incurred for utilities for unmilled period.

Accrued Utilities

Amount estimated to be anticipated for warranty claim of sales already recorded

Accrued Warranty

When unrecorded liabilities are discovered by the auditors, they should evaluate whether the omission is sufficiently material to warrant __________.

An adjusting journal entry

When testing other accrued liabilities, auditors may independently calculate the amount and ______ it to management's estimate.

Compare

Auditors are primarily concerned with establishing the __________ of recorded accounts payable.

Completeness

Determine the existence of year-end recorded accounts payable and that the client has obligations to pay these liabilities.

Confirm outstanding year-end balances of payables.

An amount paid by a customer for a container to be later returned to the company

Customer Deposit

As repairs on warranty items take place, the accrual account is ________.

Debited

Tax guidelines do not allow the ______ of the accrual for warranty claims

Deduction

"Documentation supporting change in capital stock outstanding."

Delete the text.

"Vouchers supporting increase in leasehold improvements."

Delete the text.

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

Detect accounts payable that are substantially past due. The auditors do not have as an objective the determination of whether accounts payable are past due.

When all of a company's products are sold with warranties, the balance in the accrual account should move ____ the balance in sales.

Directly with

Each vendor's invoice should be compared with the receiving report (to determine that it was received) and the purchase order (to determine that it was ordered). (2) Receiving report and the voucher is incomplete because of the omission of the purchase order. (3) Vendor's packing slip and the purchase order and (4) Vendor's packing slip and the voucher are incorrect because the receiving report, prepared by the company itself, provides better evidence of what has been received than the vendor's packing slip.

Each vendor's invoice should be compared with the receiving report (to determine that it was received) and the purchase order (to determine that it was ordered). (2) Receiving report and the voucher is incomplete because of the omission of the purchase order. (3) Vendor's packing slip and the purchase order and (4) Vendor's packing slip and the voucher are incorrect because the receiving report, prepared by the company itself, provides better evidence of what has been received than the vendor's packing slip.

Examining selected cash disbursements in the period subsequent to the year-end is the best audit procedure for determining the existence of unrecorded liabilities. All liabilities must eventually be paid, and will therefore be reflected in the accounts when paid if not when incurred. By close study of payments made subsequent to the balance sheet date, the auditors may find items that should have appeared in the balance sheet.

Examining selected cash disbursements in the period subsequent to the year-end is the best audit procedure for determining the existence of unrecorded liabilities. All liabilities must eventually be paid, and will therefore be reflected in the accounts when paid if not when incurred. By close study of payments made subsequent to the balance sheet date, the auditors may find items that should have appeared in the balance sheet.

Property tax payments are typically ______in number.

Few

Invoice dated 1/20 for cleaning services for the month of December; not included in AP as of 12/31

Improperly excluded from AP

Invoice received 12/30 for January temporary workers; included in AP as of 12/31

Improperly included in AP

To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the:

Individual who signs the checks.

Determine that the presentation and disclosure of accounts payable are appropriate.

Inquire of management concerning the existence of related party transactions.

Income taxes withheld from employees but not yet submitted to the government are considered to be a(n) _______.

Liability

When testing customer deposits, auditors typically review a(n) ______of the individual deposits.

List

With respect to auditing product warranty accruals, auditors should be alerted to changes in the client's _______ sold.

Products

Invoice dated 1/5 for January security protection; not included in AP as of 12/31

Properly excluded from AP

Invoice dated 12/20 from maintenance services and unpaid as of year-end; listed in AP at 12/31

Properly included in AP

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the:

Receiving report and the purchase order.

A client erroneously recorded a large purchase twice. Which of the following internal control measures would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

Federal and state governments do not specify the exact _____to be maintained, but do specify the amounts to be withheld.

Records

Proper balance sheet presentation of accounts payable requires that any material amounts payable to __________ such as directors and officers, be disclosed separately from other accounts payable.

Related parties

"Account 7140.10 expense analysis."

Replace with "Account 7100.10 expense analysis."

"Software development cost invoices and other support."

Retain the original text.

Auditors need to compare the percentage of claims accrued to current year ______.

Sales

The amount collected from the customer for a retail sale imposed by the state government.

Sales Tax Payable

Which of the following procedures is least likely to be completed before the balance sheet date?

Search for unrecorded liabilities. Because a significant portion of the search for unrecorded liabilities deals with transactions recorded after year-end, it is least likely to be completed before the balance sheet date.

See Ch 14 HW Question 7

See Ch 14 HW Question 7

See Ch 14 Homework #9

See Ch 14 Homework #9

See ch 14 Question 10

See ch 14 Question 10

See ch 14 Question 11

See ch 14 Question 11

When confirming accounts payable, the approach is most likely to be one of:

Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts.

When confirming accounts payable, the approach is most likely to be one of:

Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. Explanation: Accounts payable confirmations are ordinarily sent to suppliers with whom the client has done the most business. This is because the largest potential for an understatement may exist due to the client having established high levels of credit. A sample of other accounts will ordinarily also be selected.

Determine that the valuation of warranty loss reserves is measured in accordance with GAAP.

Test the computations made by the client to set up the accrual.

The individual who signs the checks should ordinarily be provided with supporting documents that provide support for the disbursement. That individual should then manually or electronically "cancel" the documents so that the amount isn't paid a second time

The individual who signs the checks should ordinarily be provided with supporting documents that provide support for the disbursement. That individual should then manually or electronically "cancel" the documents so that the amount isn't paid a second time

The most efficient way in which the duplicate recording of a purchase transaction may be detected is by reconciling the related payable accounts with vendors' statements.

The most efficient way in which the duplicate recording of a purchase transaction may be detected is by reconciling the related payable accounts with vendors' statements.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:

There is likely to be other reliable external evidence available to support the balances. Auditors will usually find in the client's possession externally created evidence such as vendors' invoices and statements that substantiate the accounts payable. No such external evidence is on hand to support accounts receivable.

An __________ of liabilities will exaggerate the financial strength of a company.

Understatement

When searching for unrecorded liabilities, the auditors consider transactions recorded _____ year-end.

after

Accounts payable _______ can be mailed to vendors from whom substantial purchases have been made.

confirmations

When auditors find unrecorded liabilities, before adjusting they must consider_______.

materiality

To gain overall assurance as to the reasonableness of accounts payable, the auditor may consider ________.

ratios