Audit Ch 14
Most of the audit work on liabilities is ordinarily performed during the interim period.
False
Since it is difficult to detect unrecorded liabilities, auditors rely primarily on the client's representations that no unrecorded liabilities exist.
False
The amount of accrued payroll is typically verified by confirmation with selected employees.
False
Which of the following procedures relating to the audit of accounts payable would the auditors be most likely to delegate entirely to the clients' employees? Test footings in the accounts payable ledger. Examine disbursements subsequent to year-end. Prepare a schedule of accounts payable. Mail confirmations for selected account balances.
Prepare a schedule of accounts payable
Which of the following procedures is least likely to be performed before the balance sheet date? Search for unrecorded liabilities. Review of internal control over cash disbursements. Observation of inventory. Confirmation of receivables.
Search for unrecorded liabilities
Which of following audit procedures is least likely to detect an unrecorded liability? Analysis and recomputation of interest expense. Analysis and recomputation of depreciation expense. Mailing of standard bank confirmation form. Readings of the minutes of meetings of the board of directors.
Analysis and recomputation of depreciation expense
Which of the following is the most efficient audit procedure for the detection of unrecorded liabilities? Confirm large accounts payable balances at the balance sheet date. Compare cash disbursements in the subsequent period with the accounts payable trial balance at year-end. Examine purchase orders issued for several days prior to the close of the year. Obtain a "liability certificate" from the client.
Compare cash disbursements in the subsequent period with the accounts payable trial balance at year-end
Under which of the following circumstances would it be advisable for the auditors to confirm accounts payable with creditors? Confirmation response is expected to be favorable and accounts payable balances are of immaterial amounts. Creditor statements are not available and internal control over accounts payable is unsatisfactory. Internal control over accounts payable is adequate and there is sufficient evidence on hand to minimize the risk of a material misstatement. The majority of accounts payable balances are with associated companies.
Creditor statements are not available and internal control over accounts payable is unsatisfactory
Unless the auditors are engaged to prepare the client's tax return, there is no need for the auditors to review the return.
False
Vouching of selected accounts payable on the client's year-end trial balance is primarily a test of completeness of recorded accounts payable.
False
A company's receiving department should be independent of its purchasing department.
True
Accounts payable confirmation requests usually have the vendor indicate the amount of the payable from the client.
True
Accounts payable with debit balances should be reclassified as receivables.
True
Auditors may discover unrecorded liabilities by reconciling vendors' statements with the accounts payable trial balance.
True
Auditors often confirm vendors' accounts with zero balances at year-end.
True
In the audit of financial statements, the auditors are particularly concerned with possible understatement of liabilities and the possible overstatement of revenues.
True
Review of a client's cash payments subsequent to the balance sheet date is an important test of the completeness of recorded payables.
True
Unclaimed payroll checks should be voided and the amount should be recorded in a special liability account.
True
When testing the amount of pension liability, the auditors typically rely on a specialist.
True
The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because: accrued liabilities usually pertain to services of a continuing nature while accounts payable are the result of completed transactions. accrued liability balances are less material than accounts payable balances. evidence supporting accrued liabilities is nonexistent while evidence supporting accounts payable is readily available. accrued liabilities at year-end will become accounts payable during the following year.
accrued liabilities usually pertain to services of a continuing nature while accounts payable are the result of completed transactions
Bell's accounts-payable clerk has a brother who is one of Bell's vendors. The brother will often invoice Bell twice for the same delivery. The accounts-payable clerk removes the receiving report for the first invoice from the paid voucher file and uses it for support of payment for the duplicate invoice. The most effective procedure for preventing this activity is to: mail signed checks without allowing them to be returned to the accounts-payable clerk. cancel vouchers and supporting papers when payment is made. use prenumbered receiving reports. use dual signatures.
cancel vouchers and supporting papers when payment is made
An audit of the balance in the accounts payable account is ordinarily not designed to: detect accounts payable due to public versus non-public companies. verify that accounts payable were properly authorized. ascertain the reasonableness of recorded liabilities. determine that all existing liabilities at the balance sheet date have been recorded.
detect accounts payable due to public versus non-public companies
Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: this is a duplication of cutoff tests. accounts payable balances at the balance sheet date may not be paid before the audit is completed. 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
Companies typically send statements to vendors detailing their accounts payable to the vendors.
False
The audit procedure of confirmation by direct communication is just as important for accounts payable as it is for accounts receivable.
False
A client's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditors' primary concern with respect to liabilities resulting from the procurement system? Commitments for all purchases are made only after established competitive bidding procedures are followed. Accounts payable are not materially understated. Authority to incur liabilities is restricted to one designated person. Acquisition of materials is not made from one vendor or one group of vendors.
Accounts payable are not materially understated
To avoid potential errors and fraud, well-designed internal control in the accounts payable area should include a separation of which of the following functions? Cash disbursements and invoice verification. Invoice verification and merchandise ordering. Physical handling of merchandise received and preparation of receiving reports. Check signing and cancellation of payment documentation.
Cash disbursements and invoice verification
To overstate net income requires the recording of an improper accounting entry.
False
All unrecorded liabilities of the same dollar total have the same effect on the client's net income.
False
Auditors are concerned with the discovery of receivables from related parties, but not with the discovery of payables from related parties.
False
Confirmation of accrued liabilities is ordinarily a required audit procedure.
False
In order to efficiently establish the accuracy of the accounts payable cutoff, the auditors will be most likely to: coordinate cutoff tests with physical inventory observation. compare cutoff reports with purchase orders. coordinate mailing of confirmations with cutoff tests. compare vendors' invoices with vendors' statements.
coordinate cutoff tests with physical inventory observation