Ch 14 HW

Ordinarily, the most significant assertion relating to accounts payable is: -Existence. -Valuation. -Presentation. -Completeness.

Completeness.

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

Inquire of management concerning the existence of related party transactions.

Accounts payable department personnel recompute the mathematical accuracy of each invoice.

Agree

All supporting documentation is required for payment and is made available to the treasurer.

Agree

Proper authorization of requisitions by department head is required before purchase orders are prepared.

Agree

Purchasing department assures that requisitions are within budget limits before purchase orders are prepared.

Agree

Requisitions, purchase orders, and receiving reports are matched with vendor invoices as to quantity and price.

Agree

Secure facilities limit access to the goods during the receiving activity.

Agree

The adequacy of each vendor's past record as a supplier is verified.

Agree

The purchasing, receiving, and accounts payable functions are segregated.

Agree

The requisitioning department head independently verifies the quantity and quality of the goods received.

Agree

The auditors of SSC Company, a nonpublic company, are working on both audit objectives for the various accounts and documentation requirements. The auditors have established the objectives listed below as a part of the audit. 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.

In an audit, the valuation of year-end accounts payable is most likely addressed by: -Examination of cash disbursements immediately subsequent to year-end. -Confirmation. -Examination of cash disbursements immediately prior to year-end. -Analytical procedures applied to vouchers payable at year-end.

Confirmation.

An audit of the balance in the accounts payable account is ordinarily not designed to: -Ascertain the reasonableness of recorded liabilities. -Verify that accounts payable were properly authorized. -Detect accounts payable that are substantially past due. -Determine that all existing liabilities at the balance sheet date have been recorded.

Detect accounts payable that are substantially past due.

A receiving report is required for all purchases, including purchases of services.

Disagree

All supporting documentation is marked "paid" by accounts payable immediately prior to making it available to the treasurer.

Disagree

Purchasing department makes certain that a low-cost supplier is always chosen.

Disagree

Receiving department compares its count of the quantity of goods received with that listed on its copy of the purchase order.

Disagree

In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test? -Valuation. -Existence. -Completeness. -Rights.

Existence.

Unexplained payments have been made to government officials.

Noncompliance with laws

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the: -Vendor's packing slip and the purchase order. -Receiving report and the purchase order. -Vendor's packing slip and the voucher. -Receiving report and the voucher.

Receiving report and the purchase order.

A purchasing agent's spouse has the same name as a major vendor of the company.

Related party

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

Search for unrecorded liabilities.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: -Accounts payable balances at the balance sheet date may not be paid before the audit is completed. -This is a duplication of cutoff tests. -Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment. -There is likely to be other reliable external evidence available to support the balances.

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

Establish the completeness of recorded accounts payable.

Vouch purchases recorded after year-end.

The company exchanged certain real estate property for similar real estate property.

Related party

The following flowchart depicts the activities relating to the purchasing, receiving, and accounts payable departments of Model Company, Inc. Assume that you are a supervising assistant assigned to the Model Company audit. Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. The department head of the requisitioning department selects the appropriate supplier.

Disagree

The voucher register is independently reconciled to the control accounts monthly by the originators of the related vouchers.

Disagree

A purchasing agent of the company has received large cash payments from a major vendor of the company.

Noncompliance with laws

When confirming accounts payable, the approach is most likely to be one of: -Selecting a random sample of accounts payable at year-end. -Confirming all accounts. -Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. -Selecting the accounts with the largest balances at year-end, plus a sample of other accounts.

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

The least likely approach in auditing management's estimate relating to an accrued liability is to: -Review subsequent events or transactions bearing on the estimate. -Independently develop an estimate of the amount to compare to management's estimate. -Review and test management's process of developing the estimate. -Send confirmations relating to the estimate.

Send confirmations relating to the estimate.

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. -Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. -Examine unusual relationships between monthly accounts payable balances and recorded purchases. -Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded.

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

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. -Accounting department. -Authorized members of the audit committee. -Chief executive officer.

Individual who signs the checks.

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. -Footing the purchases journal. -Tracing totals from the purchases journal to the ledger accounts. -Sending written quarterly confirmation to all vendors.

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

In applying audit procedures and evaluating the results of those procedures, auditors may encounter specific information that may raise a question concerning the existence of noncompliance with laws and related party transactions. Indicate whether each of the following is more likely related to noncompliance with a law or a related party transaction. Purchases have been made from a vendor at a price well above the market price for the goods involved.

Related party

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.