Audit CH. 11

Categories of expenses classified in SFAC 5 are ______.

- Product Costs - Period Costs - Systematic expenses

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

Substantive analytical procedures are used to examine plausible relationships among and _____ ______accrued expenses.

accounts payable

The main accounts affected by the auditor's achieved control risk for the purchasing process include ______.

accounts payable accrued expenses

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

Which of the following is not a SFAC 5 expense category? Systematic expenses Period costs Amortized expenses Product costs

amortized costs

To ensure proper authorization of cash disbursements, an employee who prepares cash disbursements, should not ______.

approve purchases

Substantive tests of transactions ______.

are often conducted at the same time as tests of controls may be difficult to distinguish from a test of controls

Requiring that cash disbursements are not prepared unless all source documents are included in the voucher packet and approved ensures proper ______.

authorization

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

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

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

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account determines 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

he entity's organizational structure and its methods of assigning authority and responsibility are two factors that are particularly important when the auditor considers the __________ and the purchasing process.

control environment

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

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

When tests of controls support the planned level of control risk, no modifications are normally necessary to the planned level of __________ and the auditor may proceed with the planned substantive procedures.

detection risk

Generally, the purchasing process and its related accounts ______.

do not result in contentious accounting issues are not difficult to audit

Regarding purchase returns, the auditor normally ______.

does not test controls of these transactions

The auditor's major concern with the ________ assertion is whether the recorded liabilities are valid obligations of the entity.

existence

True or false: Substantive analytical procedures are rarely used to evaluate the reasonableness of accounts payable and accrued expenses.

false

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

True or false: The purchasing process is generally a source of contentious accounting issues.

false

When the tests of controls do not support the planned level of control risk, the auditor must set a ______ level of control risk and a ______ level of detection risk.

higher, lower

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

Transactions processed through the purchasing process are the ______.

payment of the liabilities arising from purchases return of goods to suppliers for cash or credit purchase of goods and services for cash or credit

Possible misstatements due to improper authorization include ______.

purchase of unauthorized goods purchase of services at unauthorized prices

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

In the purchasing process, substantive tests of transactions focus mainly on the ______.

purchases and cash disbursement transactions

If the aggregate misstatement is greater than the tolerable misstatement, the auditor choices are to ______.

qualify the audit report adjust the accounts to reduce the misstatement

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

Disclosures that are particularly important for accounts payable are ______.

related-party purchases purchase commitments

The important issue in the ______ function of the purchasing process it that the request meets the authorization procedures implemented by the entity.

requisitioning

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

The major control for preventing fictitious purchases is proper ______.

segregation of duties

An entity usually prepares a document for purchase returns that reduces the amount of the vendor's accounts payable. This document is processed through the purchasing process in a manner ______.

similar to the processing of a vendor invoice

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

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

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

When auditing the purchasing process, the auditor should consider important industry-related factors in assessing inherent risk including ______.

whether the supply of raw materials is adequate how volatile raw material prices are

Whether the supply of raw materials is adequate and how volatile raw material prices are two important industry-related factors in assessing _______ risk when auditing the purchasing process.

inherent

Factors particularly important when the auditor considers the control environment and the purchasing process are ______.

methods of assigning authority and responsibility. organizational structure

The critical segregation of duties for preventing fictitious purchases is the separation of the ______ and ______ functions from the accounts payable and disbursement functions.

requisitioning and purchasing

True or false: The purchasing system includes returns of goods to suppliers for cash or credit.

truee

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

The auditor analyzes the purchasing process in order to identify controls that ensure material misstatements that are prevented or detected or corrected as they can be relied upon by the auditor to reduce _______ risk.

control

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.

occurance

Proper segregation of duties, independent reconciliation and review of vendor statements and monthly bank reconciliations are control activities related to the ______ assertion.

occurrence

If the auditor decides to rely on controls to reduce control risk for the authorization assertion, then to verify that this control is operating effectively the auditor must ______.

perform tests of controls

The major misstatement related to the completeness assertion is that a cash disbursement is made but not ______.

recorded in the entity's records

Proper segregation of duties for purchasing include ______.

requisitioning from invoice processing receiving from invoice processing requisitioning from general ledger

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