CH 11

The beginning step in the purchase process is usually _____. the purchase requisition receiving the goods the purchase order recording the liability

the purchase requisition

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 -Individuals who can requisition goods should not receive them.

True or false: The main objective of the general ledger function for the purchasing process is to ensure that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records.

False -This is the responsibility of accounts payable. The GL function is responsible to ensure amounts are properly accumulated, classified and summarized in the accounts.

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

Which of the following accounts is affected by all types of purchasing process transactions? Accounts payable Cash Inventory Cost of goods sold

Accounts payable

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

False -The purchases process may contain material misstatements, but is unlikely a source of contentious accounting issues.

The receiving function is responsible for ______ goods. counting paying for authorizing ordering of inspecting receiving

counting inspecting receiving

Generally, the purchasing process and its related accounts _____. are not likely to contain material misstatements do not result in contentious accounting issues are not difficult to audit

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

The invoice processing function is responsible for _____. matching purchase orders to receiving reports receiving, counting and inspecting goods received from vendors comparing account distributions with established account classifications purchased goods returned to vendors

matching purchase orders to receiving reports comparing account distributions with established account classifications purchased goods returned to vendors

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

methods of assigning authority and responsibility organizational structure

The _____ is not usually processed through the purchasing process. payment of the liabilities arising from purchases return of goods to suppliers for cash purchase of equipment for credit purchase of goods and services for credit

purchase of equipment for credit (this would only be true if the company re-sold equipment as their business)

Possible misstatements due to improper authorization include ______. purchase of unauthorized goods return of goods without authorization purchase of services at unauthorized prices purchase of goods from an alternate supplier

purchase of unauthorized goods purchase of services at unauthorized prices

A purchase transaction usually beings with a(n) _____ _____ being generated by a department or support function.

purchase requisition

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

purchase requisition

To request goods or services, an authorized individual completes a(n) _____ _____.

purchase requisition

To ensure an independent count of goods, the _____ _____ is normally a copy of the purchase order with quantities omitted.

receiving report

A receiving report _____. records the receipt of goods begins the purchases process contains the date and description of goods is sent to a vendor

records the receipt of goods contains the date and description of goods

The auditor needs to understand the controls that exist to assure that management's objectives are being met when a(n) _____ strategy is adopted for the purchasing process.

reliance

The purchasing function can achieve its objectives by _____. requiring competitive bidding using multiple vendors always seeking out the lowest possible price for goods and services changing vendors regularly

requiring competitive bidding using multiple vendors

The important issue in the _____ unction of the purchasing process it that the request meets the authorization procedures implemented by the entity

requisitioning

The bill from the supplier is called a _____. receiving report vendor invoice purchase order purchase requisition

vendor invoice

The entity verifies the accuracy of its records by comparing _____ _____ with the accounts payable records.

vendor statement

The purchasing function can achieve its objectives by using multiple _____ and requiring competitive _____.

vendors, bidding

Which of the following is NOT a principal business objective of the purchasing process? Acquiring goods and services at the lowest cost based on quality requirements. Efficiently using cash resources to pay for goods and services

Efficiently using cash resources to pay for goods and services

Disbursements made by check or EFT are recorded in the _____. cash disbursements journal voucher register purchases journal check disbursements journal

cash disbursements journal

A voucher register normally ______. contains a column for a debit to accounts payable contains a listing of inventory acquired for the period contains a column for a credit to accounts payable records receipt of vouchers from vendors

contains a column for a credit to accounts payable

A vendor invoice_____. contains the quantity shipped and price is the bill from the supplier is sent to a vendor begins the purchases process

contains the quantity shipped and price is the bill from the supplier

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

Preparing and signing checks for paying vendors and authorizing electronic funds transfers is the responsibility of the _____ function

disbursement

"Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." is the definition of _____.

liabilities

Understanding how management assesses the design and operation of controls is part of understanding the entity's _____ process over the purchasing process.

monitoring

Understanding how supervisory personnel within the purchasing process review the personnel who perform and controls and evaluating the performance of the entity's IT system is part of the auditor's understanding of the entity's _____ process over purchasing.

monitoring

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

overstated

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 perform substantive tests review prior year controls document the controls

perform tests 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

Proper segregation of duties for purchasing include _____. requisitioning from general ledger receiving from invoice processing invoice processing from shipping cash receipts from general ledger requisitioning from invoice processing

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

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

requisitioning, purchasing

The major control for preventing fictitious purchases is proper _____. authorization by management review of receiving reports segregation of duties

segregation of duties

When a purchase journal is utilized, the accounts payable _____ _____ records the transactions with, and the balances owed to, a vendor.

subsidiary ledger

A voucher is _____. used to control payment for purchases the origination of the purchases process in most entities sent to a vendor attached to the purchase requisition, PO, receiving report, and invoice

used to control payment for purchases attached to the purchase requisition, PO, receiving report, and invoice

To control payment for acquired goods and services, entities frequently use a(n) _____.

voucher

The auditor develops an understanding of the purchasing process by conducting a(n) _____.

walkthrough

True or false: The major difference between a voucher register and a purchases journal is the way individual vouchers or vendor invoices are summarized.

True

For a disbursement, adequate supporting documentation must verify that the _____. account distribution is appropriate entire amount of the invoice is being paid transaction was properly authorized disbursement is for a legitimate business purpose vendor has been used by the organization before

account distribution is appropriate transaction was properly authorized disbursement is for a legitimate business purpose

Only the ______ ______ account is affected by all three types of purchase transactions.

accounts payable

Organizations can control requisitioning authorization by _____. authorization dollar limits for different levels of employees 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

The cash disbursements journal usually has columns for _____. debits to cash debits to accounts payable credits to cash credits to accounts payable

debits to accounts payable credits to cash

The person who approved the purchase and the authorization to buy a good or service is included on the _____ _____.

purchase order

When auditing the purchasing process, the auditor should consider important industry-related factors in assessing inherent risk including _____. whether customers will pay on time at invoice whether employees have opportunity for theft whether the supply of raw materials is adequate how volatile raw material prices are

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

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

Amortized expenses

To understand the entity's risk assessment process, the auditor must understand how management _____. documents the control environment that addresses the purchasing process assesses the likelihood of purchasing process risk occurrence weighs the risks that are relevant to the purchasing process decides what actions to take to address purchasing process risks estimates purchasing process risk significance

assesses the likelihood of purchasing process risk occurrence weighs the risks that are relevant to the purchasing process decides what actions to take to address purchasing process risks estimates purchasing process risk significance

The auditor must understand how management weighs the risks that are relevant to the purchasing process, estimates their significance, assess the likelihood of occurrence and decides what actions to take to address them in order to understand the entity's risk _____ process.

assessment

The auditor develops an understanding of the purchasing process by _____. contacting vendors reviewing general ledger conducting a walkthrough reviewing prior year documentation

conducting a walkthrough reviewing prior year documentation

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 principal business objectives of the purchasing process are ______. effectively using cash resources to pay for goods and services acquiring goods and services at the desired quality saving financing costs by paying vendors early acquiring goods and services at the lowest cost

effectively using cash resources to pay for goods and services acquiring goods and services at the desired quality acquiring goods and services at the lowest cost

The accounts payable department _____. ensures that an appropriate liability is recognized ensures that all goods received are recorded as assets or expenses processes invoices processes purchase requisitions and purchase orders

ensures that an appropriate liability is recognized ensures that all goods received are recorded as assets or expenses processes invoices

Outflows or other using up of assets from delivering or producing goods, rendering services, or carrying out other activities that constitute an entity's ongoing major or central operations are _____.

expense

Ensuring that all purchases, cash disbursements, and payables are properly accumulated, classified and summarized in the accounts is the main objective of the _____ _____ function for the purchasing process.

general ledger

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, higher lower, higher higher, lower lower, lower

higher, lower

When a reliance strategy is adopted for the purchasing process, the auditor needs to _____. also adopt a reliance strategy for the revenue process identify controls that assure assertions are met perform significant substantive testing

identify controls that assure assertions are met

A purchase order _____. is an internal document indicates the authorization to purchase the goods or services includes the description, quality and quantity of the goods being purchased is created by the purchasing department after the vendor is paid

indicates the authorization to purchase the goods or services includes the description, quality and quantity of the goods being purchased

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

Transactions processed through the purchasing process are the _____. return of goods from customers for cash or credit receipt of cash from customers for sales return of goods to suppliers for cash or credit purchase of goods and services for cash or credit 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 payment of the liabilities arising from purchases

When a voucher register system is utilized, the accounts payable _____ _____ is a listing of unpaid vouchers.

subsidiary ledger

The vendor's statement may differ from the entity's records because of: timing differences in shipping goods unapproved purchases recorded in the voucher register customer returns errors timing differences in supplier recording cash receipts

timing differences in shipping goods errors timing differences in supplier recording cash receipts