Chapter 14 Multiple choice

Ordinarily, the most significant assertion relating to accounts payable is: a. Completeness. b. Existence. c. Presentation. d. Valuation.

a. Completeness.

Which of the following is the best control procedure to prevent the payment of an invoice twice? a. Review of supporting documentation by the person signing the check. b. Requiring dual signatures on checks. c. Use of a check protector. d. Reconciliation of vendor statements to accounts payable

a. Review of supporting documentation by the person signing the check.

The confirmation of accounts payable is most closely associated with: Assertion risk. Detection risk. Inherent risk. Relative risk.

Detection risk.

For good internal control, a copy of a receiving report should be sent to all of the following departments except: a. Accounts payable. b. Purchasing. c. Stores. d. Shipping

d. Shipping

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

b. Search for unrecorded liabilities.

With properly designed internal control, the same employee should not be permitted to: a. Sign checks and cancel supporting documents. b. Receive merchandise and prepare a receiving report. c. Prepare disbursement vouchers and sign checks. d. Initiate a request to order merchandise and approve merchandise received.

c. Prepare disbursement vouchers and sign checks

Auditors should be aware that a voucher system may result in which of the following at year-end: a. Understatement of liabilities. b. Overstatement of assets. c. Understatement of owners' equity. d. Overstatement of expenses.

a. Understatement of liabilities.

Which of the following best describes the specific accounts payable that are selected for confirmation? a. Accounts with large balances. b. Accounts with zero balances. c. Accounts with a large amount of activity regardless of their balance. d. Accounts for which vendor statements are available.

c. Accounts with a large amount of activity regardless of their balance.

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

a. Confirmation.

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts. Which procedure(s) would possibly identify these transactions? Item Trace from source documents to journals Vouch from journal to source documents A. No No B. No Yes C. Yes No D. Yes Yes Option A Option B Option C Option D

Option D

Which of the following statements is correct regarding accounts payable and the auditor's procedures? a. Because it is generally more difficult to discover a transaction that has not been recorded than to discover one that has been recorded incorrectly, the audit objective of completeness drives many of the substantive procedures applied to these balances. b. A judgment whether an unrecorded payable should be recorded before the financial statements are prepared depends entirely upon the source of the payable. c. The confirmation of accounts payable selected from the year-end trial balance of such accounts is most effective in discovering unrecorded liabilities. d. Unrecorded payables are often discovered through examining vouchers payable entered into the voucher register prior to the balance sheet date.

a. Because it is generally more difficult to discover a transaction that has not been recorded than to discover one that has been recorded incorrectly, the audit objective of completeness drives many of the substantive procedures applied to these balances.

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

a. Detect accounts payable that are substantially past due.

Internal control over accounts payable is improved when: a. Purchase orders show approved prices. b. Informal bids are obtained. c. Annual trial balance of accounts payable subsidiary ledgers is required. d. Payment is made upon approval of the purchasing agent.

a. Purchase orders show approved prices.

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

a. Receiving report and the purchase order.

Which of the following manipulations would understate accounts payable on the financial statements? a. Overstatement of purchases. b. Closing the cash disbursements journal prior to year-end. c. Leaving the cash receipts journal open after year-end. d. Overstating purchase returns.

d. Overstating purchase returns.

Which of the following is a control procedure that is usually applied to accounts payable? a. Periodic confirmation of accounts payable. b. Mailing statements to vendors detailing their account. c. Periodic aging of accounts payable. d. Reconciliation of vendor statements with accounts payable.

d. Reconciliation of vendor statements with accounts payable.

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

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

Which statement is correct with respect to accounts payable confirmations? a. The negative form is used in most circumstances. b. Accounts with new suppliers are always confirmed. c. They are a required auditing procedure. d. they are more frequently used in situations in which some vendors don't send monthly statements.

d. they are more frequently used in situations in which some vendors don't send monthly statements.

Unrecorded liabilities are most likely to be found during the review of which of the following documents? a. Unpaid bills. b. Shipping records. c. Bills of lading. d. Unmatched sales invoices.

a. Unpaid bills.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable? a. reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period. b. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. c. Examining unusual relationships between monthly accounts payable balances and recorded cash payments. d. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

a. reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.

Which of the following best describes the auditors' approach to the audit of accrued liabilities? a. test computations. b. Confirmation. c. Observation. d. A low planned assessed level of control risk.

a. test computations.

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by: a. Confirmation and observation. b. Observation and inquiry. c. Analytical procedures and confirmation. d. Inquiry and analytical procedures.

b. Observation and inquiry.

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? a. Footing the purchases journal. b. Reconciling vendors' monthly statements with subsidiary payable ledger accounts. c. Tracing totals from the purchases journal to the ledger accounts. d. Sending written quarterly confirmation to all vendors.

b. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

A client recorded a payable for a large purchase twice. Which of the following controls would be most likely to detect this error in a timely and efficient manner? a. Footing the purchases journal. b. Reconciling vendors' monthly statements with subsidiary payable ledger accounts. c. Tracing totals from the purchases journal to the ledger accounts. d. Sending written quarterly confirmations to all vendors.

b. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

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

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

Which of the following best describes a voucher prepared under good internal control? a. A document prepared by Stores that indicates amount to be purchased. b. A document prepared by Receiving that indicates the quantity received and approves payment. c. A document prepared by Accounts Payable authorizing a cash disbursement. d. A document received by Purchasing, from a supplier, indicating quantity of goods purchased and amount due.

c. A document prepared by Accounts Payable authorizing a cash disbursement.

Most of the audit work on accounts payable is typically performed: a. Before the balance sheet date. b. At the balance sheet date in conjunction with inventory cutoff tests. c. After the balance sheet date. d. Simultaneously with the audit of accrued liabilities.

c. After the balance sheet date.

When the auditors select a sample of items from the vouchers payable register for the last month of the period under audit and trace these items to underlying documents, the auditors are gathering evidence primarily in support of the assertion that: a. Recorded obligations were paid. b. Incurred obligations were recorded in the correct period. c. Recorded obligations occurred prior to year-end. d. Cash disbursements were recorded as incurred obligation.

c. Recorded obligations occurred prior to year-end.

The form typically used to confirm accounts payable: a. Does not require a response from the vendor. b. Confirms the balance recorded by the client at year-end. c. Requires the vendor to indicate the amount of the payable. d. Is the same as the form used to confirm accounts receivable.

c. Requires the vendor to indicate the amount of the payable.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? a. Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. b. Examine unusual relationships between monthly accounts payable balances and recorded purchases. c. Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. d. Examine selected cash disbursements in the period subsequent to year-end.

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

Accrued liabilities generally differ from accounts payable in that accrued liabilities: a. Accumulate over time. b. Are usually confirmed at year-end. c. Depend upon the existence of a transaction for original recording of the account. d. Are never included in cost of goods sold.

a. Accumulate over time.

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed? a. Scan the sales journal for sequential and unusual entries. b. Examine shipping documents for matching sales invoices. c. Compare the accounts receivable ledger to daily sales summaries. d. Inspect unused sales invoices for consecutive prenumbering.

b. Examine shipping documents for matching sales invoices.

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? a. Completeness. b. Existence. c. Valuation. d. Rights.

b. Existence.