Ch. 11 - 4110

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

authorization

Select all that apply Categories of expenses classified in SFAC 5 are ______. prepaid expenses product costs irregular expenses period costs systematic expenses

product costs period costs systematic expenses

To request goods or services, an authorized individual completes a(n) ______________ _____________

purchase requisition

Select all that apply The main accounts affected by the auditor's achieved control risk for the purchasing process include ______. accrued expenses accounts receivable cash accounts payable

AP accrued expenses

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

Substantive analytical procedures are used to examine plausible relationships among ___________ ____________ and accrued expenses.

accounts payable

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? Period costs Product costs Systematic expenses Amortized expenses

amortized expenses

The potential misstatement related to the accuracy assertion is that the payment is not properly authorized is not a valid transaction for the entity is not recorded in the correct period amount is recorded incorrectly

amount is recorded incorrectly

Substantive tests of transactions ______. may be difficult to distinguish from a test of controls are conduced to test the operation of a control procedure are often conducted at the same time as tests of controls

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

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

Recording purchases in the correct account is evidence regarding the _________ assertion completeness authorization cutoff classification

classification

Segregating short-term and long-term payables is one of the major issues with respect to presentation and disclosure assertions about ______. completeness occurrence cutoff classification

classification

The auditor's concern with proper _______ is that a cash disbursement may be charged to the wrong general ledger account.

classification

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account determines the ______ of accounts payable. completeness occurrence cutoff classification

completeness

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

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 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

The auditor should analyze accounts payable misstatements discovered through the application of substantive procedures because these misstatement may provide additional evidence as to the _______________ _______________

control risk

Controls to ensure that purchase transactions are recorded promptly and in the proper period are controls over ______. cutoff authorization occurrence completeness

cutoff

On most audits, purchase _______ is coordinated with the entity's physical inventory count

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 completeness occurrence classification

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

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. credits; credits debits; debits debits; credits credits; debits

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

The auditor's major concern with the ______ assertion is whether the recorded liabilities are valid obligations of the entity. completeness valuation existence cutoff

existence

Select all that apply: If purchase transactions that do not occur are recorded ______. a liability will be recorded assets may be understated expenses may be overstated an incorrect payment will be made

expenses may be overstated a liability will be recorded an incorrect payment will be made

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

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 lower, lower lower, higher higher, higher

higher, lower

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 ______. prepaid expenses deferred income taxes deferred revenue income tax liability

income tax liability

When compared to accounts receivable confirmations, accounts payable confirmations are used ______ frequently by auditors. more less equally

less

Select all that apply Factors particularly important when the auditor considers the control environment and the purchasing process are ______. number of vendors that supply the purchasing process methods of assigning authority and responsibility. whether prices are significantly affected by swings organizational structure

methods of assigning authority and responsibility organizational structure

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 ______. management overrides inherent risk in the process monetary misstatement

monetary misstatement

If purchase transactions that do not occur are recorded, assets or expenses will be overstated understated

overstated

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 sale receipt of goods authorization payment

payment

Select all that apply Possible misstatement due to improper authorization include - purchase of unauthorized goods - return of goods without authorization - purchase of goods from an alternate supplier - purchase of services at unauthorized prices

purchase of unauthorized goods the purchase of services at unauthorized prices

An authorized person in a department requests goods with a ______. purchase order receiving report voucher purchase requisition

purchase requisition

In the purchasing process, substantive tests of transactions focus mainly on the ______. purchases and cash disbursement transactions presentation and disclosures related to accounts payable transactions detailed amounts that make up the ending balance for accounts payable management assertions regarding internal control over purchases

purchases and cash disbursement transactions

Select all that apply 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 perform additional audit procedures resign from the engagement

qualify the audit report adjust the accounts to reduce the misstatement

The major misstatement related to the completeness assertion is that a cash disbursement is made but not ______. properly classified authorized recorded in the correct period recorded in the entity's records

recorded in the entity's records

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 make no change to increase

reduce

Select all that apply Disclosures that are particularly important for accounts payable are ______. related-party purchases cash discounts taken purchase commitments interest expense

related-party purchases purchase commitments

Two particularly important disclosures for accounts payable and accrued expenses are ______ -_____ purchase transactions and _______ _______

related-party, purchase commitments

The important issue in the ___________ function of the purchasing process is that the request meets the authorization procedures implemented by the entity

requisitioning

Select all that apply Proper segregation of duties for purchasing include ______. requisitioning from invoice processing invoice processing from shipping receiving from invoice processing requisitioning from general ledger cash receipts from general ledger

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

A review of the voucher packets for adequate supporting documents relating liabilities to the entity provides sufficient evidence to support the ______ assertion. completeness existence rights and obligations valuation and classification

rights and obligations

Because entities seldom have an incentive to record liabilities they are not responsible for, there is little risk related to the assertion of ______. existence completeness valuation and classification rights and obligations

rights and obligations

A key control over unauthorized cash disbursements is numerical sequence of checks segregation of duties bank reconciliations

segregation of duties

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 vendor statements are available the auditor is also sending receivable confirmations

the entity has weak internal control

If the entity fails to record a purchase that has been made, assets or expenses will be ______, and accounts payable will be ______. understated; overstated understated; understated overstated; understated overstated: overstated

understated; understated

The ______ of individual accounts payable is generally not a difficult assertion to test. occurrence cutoff valuation completeness

valuation

The tests of details of account balances normally provides sufficient evidence as to the proper ______ of accounts payable. cutoff valuation existence classification

valuation

To verify the existence of liabilities, the auditor can ______. vouch a sample of the items on the accounts payable listing to voucher packets test a sample of purchase requisitions for proper authorization test a sample of vouchers for an authorized purchase order

vouch a sample of the items on the accounts payable listing to voucher packets

Organizations can control requisitioning authorization by ______. having functional areas submit requests to the purchasing department allowing all individuals in the organization to request goods and services authorization dollar limits for different levels of employees

authorization dollar limits for different levels of employees

A possible misstatement for the accuracy assertion is that purchase transactions may ______. not be recorded be recorded at incorrect amounts be recorded for goods that were not purchased

be recorded at incorrect amounts

Use of a chart of accounts and independent approval and review of the general ledger accounts charged for acquisition are controls for the __________ assertion

classification

Controls that ensure the _________ assertion is being met for purchases include accounting for the numerical sequence of purchase orders, receiving reports, and vouchers and matching receiving reports with vendor invoices

completeness

The auditor tests the control activities for the _____________ assertion by comparing the date on the receiving report with the date on the voucher

cutoff

Select all that apply The major issues related to the presentation and disclosure assertion about accounts payable are ______. segregating short-term and long-term payables identifying and reclassifying any material unpaid expenses ensuring that different types of payables are properly classified segregating current assets from current liabilities identifying and reclassifying any material debits contained in accounts payable

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

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

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 ______. document the controls perform tests of controls review prior year controls perform substantive tests

perform test of controls

Expenses that are recognized when cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter are referred to as ______________ costs

period