Audit Ch. 8 MC

Which are the *three* important assertions for accounts payable? a. completeness b. valuation c. cutoff d. classification

A, B, and C

For which of the following accounts would the matching concept be the most appropriate? a. Cost of goods sold b. Research and development c. Depreciation expense d. Sales

A. Cost of good sold

In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for A. Occurrence. B. Completeness. C. Classification. D. Cutoff.

B. Completeness

Expenses may be improperly classified to: a. lower total expenses b. increase total assets c. both A and B

C. Both a and b - this occurs when ordinary expenses are capitalized

Which of the following would not overstate current-period net income? a. capitalizing an expenditure that should be expensed b. failing to record a liability as an expense c. failing to record a check paying an item in Vouchers Payable d. All of the above would overstate net income

C. failing to record a check paying an item in Vouchers Payable

The most significant risks in the expenditure cycles generally relate to the _________ of expenditures and _________ of acquisitions

Completeness of expenditures and valuation of acquisitions

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time? a. vouchers should be prepared by individuals who are responsible for signing disbursements checks b. Disbursement vouchers should be approved by at least two responsible management officials. c. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. d. The official who signs the check should compare the check with the voucher and should stamp ""PAID"" on the voucher documents.

D. The official who signs the check should compare the check with the voucher and should stamp ""PAID"" on the voucher documents.

What are the two primary means of gathering evidence supporting management assertions with respect to PP&E?

Physical inspection and vouching

A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting form the purchasing system? a. Accounts payable are not materially understand b. Authority to incur liabilities is restricted to one designated person c. Acquisition of materials is not made from one vendor or one group of vendors d. Commitments for all purchases are made only after established competitive bidding procedures are followed

a. Accounts payable are not materially understand

When goods arrive at a company, they are accompanied by a a. bill of lading b. purchase order c. receiving report d. purchase requisition

a. bill of lading

Auditors should examine the open purchase order file to find evidence of: a. losses on purchase commitments b. understated expenses c. unrecorded liabilities d. goods received but not recorded

a. losses on purchase commitments

Which of the following accounts would most likely be audited in connection with a related balance-sheet account? a. Property tax expense b. payroll expense c. research and development d. legal expense

a. property tax expense

Auditors should inspect the unmatched invoice file and compare it with the unmatched receiving report file to determine a. unrecorded liabilities b. overstated assets c. goods that were recorded but not received d. losses on purchase commitments

a. unrecorded liabilities

The search for unrecorded liabilities is normally performed from the audit client's a. beginning of the year to the date of the audit report b. balance sheet date to the date of the audit report c. beginning of the year to the balance sheet date d. all of the above

b. balance sheet date to the date of the audit report

Inventory may be automatically ordered from approved vendors through a. purchase order automation b. electronic data interchange c. auto-purchase requition d. electronic bill of lading

b. electronic data interchange

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 are on a subsidiary trial balance of accounts payable b. examine a sample of cash disbursements in the period subsequent to year-end c. examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded d. examine unusual relationships between monthly accounts payable and recorded purchases

b. examine a sample of cash disbursements in the period subsequent to year-end

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated? a. examining reported purchase returns that appear too low b. examining vendor statements for amounts not reported as purchases c. searching for customer-returned goods that were not reported as returns d. reviewing bank transfers recorded as cash received from customers

b. examining vendor statements for amounts not reported as purchases

Vouching of expenses may be limited to significant items if ______ controls are strong. a. internal b. occurrence c. valuation d. existence

b. occurrence

Once an appropriate vendor is selected for the goods or services, a _______ is sent to the selected vendor a. purchase requisition b. purchase order c. bill of lading d. receiving report

b. purchase order

The expenditure cycle begins when an individual or department that needs supplies, equipment or services sends a _____ to the purchasing department? a. Purchase order b. purchase requisition c. receiving report d. purchase receipt

b. purchase requisition

A blanket purchase order: a. may enable the company to get a discount b. could result in automatic delivery of goods c. both a and b d. neither a or b

c. both a and b a blanket purchase order gives a vendor some flexibility in making the order, but delivery is up to the buyer

When verifying debits to the perpetual inventory records of a non-manufacturing company, auditors would be most interested in examining a sample of purchase: a. approvals b. requisition c. invoices d. orders

c. invoices

To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all a. vendor's invoice b. purchase orders c. receiving reports d. canceled checks

c. receiving reports

Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by a. comparison of the company name to the approved vendor list by the check signer b. recognition of the excess maintenance costs by Curtis's supervisor c. refusal by the purchasing department to approve the vendor d. all of the above

c. refusal by the purchasing department to approve the vendor

Which of the following accounts does not appear in the acquisition and expenditure cycle? a. cash b. purchases returns c. sales returns d. prepaid insurance

c. sales returns

Which of the following procedures is least likely to be performed before the balance-sheet date? a. observation of inventory b. review of internal control over cash disbursements c. search for unrecorded liabilities d. confirmation of receivables

c. search for unrecorded liabilities

When auditing account balances of liabilities, auditors are most concerned with management's assertion about: a. existence b. rights and obligations c. completeness d. valuation and allocation

completeness

A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls would have been *least* likely to have prevented this erroneous payment? a. The copy of the purchase order sent to the furniture company's receiving department should not have shown an expected quantity b. Personnel in the furniture company's accounts payable department should compare the receiving report to the purchase invoice before creation of the voucher. c. Personnel in the furniture company's cash disbursements department should compare the check that is prepared to all of the backup documentation. d. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

d. Personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a cash-on-delivery (COD) basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over: a. Purchase requisition b. Cash receipts c. perpetual inventory records d. purchase orders

d. Purchase orders

Fraud issues in the purchasing department include the risk of a. kickbacks b. fictitious invoices c. misdirected purchases d. all of the above

d. all of the above

In which circumstances would it be appropriate to use accounts payable confirmations? a. the company's cash position is tight b. physical inventories significantly exceed general ledger inventory balances c. internal controls are weak d. all of the above

d. all of the above

Which of the following are entity-level controls over the expenditure process? a. proper authorization b. corporate values and ethics c. management review d. all of the above

d. all of the above

Because management may desire to improve the books by not recording an obligation in the correct period, which two assertions are important for accounts payable? a. completeness and valuation b. existence and accuracy c. existence and cutoff d. completeness and cutoff

d. completeness and cutoff

Which of the following is *not* generally done with tests of controls? a. observations b. recalculations c. inspections d. confirmations

d. confirmations tests of controls involve inspecting, inquiry, observing, scanning, matching and recalculating

An audit team would most likely examine the detail support for charges to which of the following accounts? a. payroll expense b. cost of good sold c. supplies expense d. legal expense

d. legal expense

Which of the specific assertions relate to the valuation of PP&E? a. goodwill is not impaired b. asset cost includes freight-in c. no repair & maintenance costs should be capitalized d. only a and b

d. only a and b repair & maintenance costs should be capitalized relates to the *completeness* assertion

A voucher packer includes copies of what?

the voucher is attached to the vender invoice, the purchase order and receiving report