CH 14 (TB)

Accounts payable from an officer should be classified separately from other accounts payable.

TRUE

Overstatement of financial results can involve failure to record a transaction.

TRUE

Which of the following best describes the auditors' approach to the audit of accrued liabilities?

Test computations.

The auditor will most likely perform extensive tests for possible understatement of:

Liabilities.

Which statement is correct with respect to accounts payable confirmations?

They are more frequently used in situations in which some vendors don't send monthly statements.

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:

Observation and inquiry.

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions? Trace from a source Vouch from journals Item documents to journals to source documents A No No B No Yes C Yes No D Yes Yes

Option D

Auditors may choose not to confirm accounts payable because:

Other reliable external evidence to support the balances is likely to be available.

Which of the following manipulations would understate accounts payable on the financial statements?

Overstating purchase returns.

With properly designed internal control, the same employee should not be permitted to:

Prepare disbursement vouchers and sign checks.

Which of the following is an example of an accrued liability?

Product warranty liability.

Internal control over accounts payable is improved when:

Purchase orders show approved prices.

A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to

Purchases.

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

Search for unrecorded liabilities.

For good internal control, a copy of a receiving report should be sent to all of the following departments except:

Shipping.

The auditors' search for unrecorded liabilities is completed:

Subsequent to the balance sheet date.

Auditors generally consider the evidence regarding accounts payable in the client's possession as more reliable than that for accounts receivable.

TRUE

Information regarding the proper cutoff of accounts payable is generally obtained in conjunction with the audit of inventories.

TRUE

The confirmation of existing accounts payable does not prove the completeness of recorded accounts payable.

TRUE

Auditors should be aware that a voucher system may result in which of the following at year-end:

Understatement of liabilities.

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

Unpaid bills.

Which of the following audit procedures is least likely to detect an unrecorded liability?

Analysis and recomputation of depreciation expense.

When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited?

Cash

Which of the following best describes a voucher prepared under good internal control?

A document prepared by Accounts Payable authorizing a cash disbursement.

Which of the following best describes the specific accounts payable that are selected for confirmation?

Accounts with a large amount of activity regardless of their balance.

Accrued liabilities generally differ from accounts payable in that accrued liabilities:

Accumulate over time.

Most of the audit work on accounts payable is typically performed:

After the balance sheet date.

Which of the following statements is correct regarding accounts payable and the auditor's procedures?

Because it is generally more difficult to discover a transaction that has not been recorded than to discover one that has been recorded incorrectly, the audit objective of completeness drives many of the substantive procedures applied to these balances.

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of:

Canceled checks.

The assertion most directly addressed when performing the search for unrecorded liabilities is:

Completeness.

The confirmation of accounts payable is most closely associated with:

Detection risk.

Which of the following procedures for detecting unrecorded transactions at the client's December 31 year-end is least likely to result in discovery of an unrecorded year-end account payable?

Examination of January receiving reports prepared for goods shipped FOB destination in December to the client.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Examine shipping documents for matching sales invoices.

Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable:

Examining underlying documentation for cash disbursements in the period after year-end.

Accounts payable generally present the auditors with difficult valuation problems.

FALSE

Confirmation of accounts payable is a required generally accepted auditing procedure.

FALSE

For effective internal control over accounts payable, the purchasing department should approve invoices for payment.

FALSE

It is more important to maintain effective internal control over accounts payable as it is to maintain effective internal control over accounts receivable.

FALSE

The primary objective of the auditors' examination of accounts payable is to determine whether payments are made on a timely basis.

FALSE

Which of the following is a control procedure that is usually applied to accounts payable?

Reconciliation of vendor statements with accounts payable.

A client recorded a payable for a large purchase twice. Which of the following controls would be most likely to detect this error in a timely and efficient manner?

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

When the auditors select a sample of items from the vouchers payable register for the last month of the period under audit and trace these items to underlying documents, the auditors are gathering evidence primarily in support of the assertion that:

Recorded obligations occurred prior to year-end.

The form typically used to confirm accounts payable:

Requires the vendor to indicate the amount of the payable.

Which of the following is the best control procedure to prevent the payment of an invoice twice?

Review of supporting documentation by the person signing the check.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.

When the auditors discover an understatement of liabilities, they would most likely also expect to find an:

Understatement of assets.

Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?

completeness.