Audit Chapter 14

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

A document prepared by Accounts Payable authorizing a cash disbursement.

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

Unpaid bills.

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

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

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

After the balance sheet date.

Which of the following audit procedures is least likely to detect an unrecorded liability? Multiple Choice Analysis and recomputation of interest expense. Analysis and recomputation of depreciation expense. Mailing of a cash confirmation form. Reading of the minutes of meetings of the board of directors.

Analysis and recomputation of depreciation expense.

Accrued liabilities generally differ from accounts payable in that accrued liabilities: Multiple Choice Are often based on estimates. Are usually confirmed at year-end. Depend upon the existence of a transaction for original recording of the account. Are never included in cost of goods sold.

Are often based on estimates.

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

Because it can be difficult to discover a transaction that has not been recorded, the audit objective of completeness drives many of the substantive procedures applied to these balances.

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: Multiple Choice Purchase orders. Canceled checks. Receiving reports. Approved vouchers.

Canceled checks.

When an auditor finds a debit to accounts payable, which of the following accounts is most likely to be credited? Multiple Choice Accounts Receivable. Accrued liabilities. Cash. Cost of goods sold.

Cash.

The assertion most directly addressed when performing the search for unrecorded liabilities is: Multiple Choice Completeness. Existence. Presentation. Rights.

Completeness.

Which of the following assertions is of principle concern to the auditors in the examination of accounts payable? Multiple Choice Existence. Completeness. Valuation. Authorization.

Completeness.

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

Detection risk.

The accounts payable department receives the purchase order form to accomplish all of the following except: Multiple Choice Compare invoice price to purchase order price. Ensure the purchase had been properly authorized. Ensure the goods had been received by the party requesting the goods. Compare quantity ordered to quantity purchased.

Ensure the goods had been received by the party requesting the goods.

Which of the following procedures for detecting unrecorded transactions at the client's December 31 year-end is least likely to result in discovery of an unrecorded year-end account payable? Multiple Choice Examination of invoices received after year-end. Examination of vouchers payable entered in the January voucher register. Examination of January receiving reports prepared for goods shipped FOB destination in December to the client. Confirmation of year-end accounts payable.

Examination of January receiving reports prepared for goods shipped FOB destination in December to the client.

The auditor will most likely perform extensive tests for possible understatement of: Multiple Choice Revenues. Assets. Liabilities. Capital.

Liabilities.

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

Examine shipping documents for matching sales invoices.

Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable? Multiple Choice Footing the list of accounts payable. Examining underlying documentation for cash disbursements in the period after year-end. Tracing shipping reports issued on or before year-end to related customer purchase orders and invoices. Tracing shipping reports after year-end to related customer purchase orders and invoices.

Examining underlying documentation for cash disbursements in the period after year-end.

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated? Multiple Choice Examining reported purchase returns that appear too low. Examining vendor statements for amounts not reported as purchases. Search for customer-returned goods that were not reported as returns. Reviewing bank transfers recorded as cash received from customers.

Examining vendor statements for amounts not reported as purchases.

Which of the following could most likely be performed efficiently with data analytics? Multiple Choice Confirmation of accounts payable. Identification of payables from purchases of goods that do not have evidence of receipt of the goods. Identification of unrecorded accounts payable. Review of vendors' statements.

Identification of payables from purchases of goods that do not have evidence of receipt of the goods.

Which of the following is an example of an accrued liability? Multiple Choice Accounts payable. Notes payable. Prepaid insurance. Interest payable.

Interest payable.

To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a separation of which of the following functions? Multiple Choice 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.

Invoice verification and merchandise ordering.

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if: Multiple Choice There are usually invoices in an unmatched invoice file. Vendors' requests for confirmation of receivables often go unanswered for several months until paid invoices can be reviewed. Partial payments to vendors are continuously made in the ordinary course of business. It is difficult to reconcile vendors' monthly statements.

It is difficult to reconcile vendors' monthly statements.

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

Understatement of liabilities.

Which of the following is a control procedure that is usually applied to accounts payable? Multiple Choice Periodic confirmation of accounts payable. Mailing statements to vendors detailing their account. Periodic aging of accounts payable. Matching invoices with receiving documents before disbursements are authorized.

Matching invoices with receiving documents before disbursements are authorized.

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: Multiple Choice Confirmation and observation. Observation and inquiry. Analytical procedures and confirmation. Inquiry and analytical procedures.

Observation and inquiry.

Which of the following manipulations would understate accounts payable on the financial statements? Multiple Choice Overstatement of purchases. Closing the cash disbursements journal prior to year-end. Leaving the cash receipts journal open after year-end. Omission of expenses.

Omission of expenses.

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

Option D

Auditors may choose not to confirm accounts payable because: Multiple Choice Confirmation obtains evidence identical to that obtained by cutoff tests. Other reliable external evidence to support the balances is likely to be available. A reading of the corporate minutes reveals that confirmation is unnecessary. The balances due will have changed between the year-end and the date of confirmation.

Other reliable external evidence to support the balances is likely to be available.

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

Prepare disbursement vouchers and sign checks.

A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to: Multiple Choice Accounts payable. Notes payable. Purchases. Sales discounts.

Purchases.

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? Multiple Choice Footing the purchases journal. Reconciling vendors' monthly statements with subsidiary payable ledger accounts. Tracing totals from the purchases journal to the ledger accounts. Sending written quarterly confirmations to all vendors.

Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

When the auditors select a sample from the vouchers payable register at the end of the period and trace them to underlying documents, the auditors are gathering evidence primarily to support that: Multiple Choice Recorded obligations were paid. Incurred obligations were recorded in the correct period. Recorded obligations occurred prior to year-end. Cash disbursements were recorded as incurred obligation.

Recorded obligations occurred prior to year-end.

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

Requires the vendor to indicate the amount of the payable.

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

Review of supporting documentation by the person signing the check.

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

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 procedures is least likely to be completed before the balance sheet date? Multiple Choice Observation of inventory. Review of internal control over cash disbursements. Search for unrecorded liabilities. Confirmation of receivables.

Search for unrecorded liabilities.

An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? Multiple Choice Select and examine vouchers and ascertain that the related canceled checks are dated no later than the vouchers. Select and examine vouchers and ascertain that the related canceled checks are dated no earlier than the vouchers. Select and examine canceled checks and ascertain that the related vouchers are dated no earlier than the checks. Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.

Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.

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

Shipping.

The auditors' search for unrecorded liabilities is completed: Multiple Choice During an interim period. At the balance sheet date. Subsequent to the balance sheet date. At any time during the examination.

Subsequent to the balance sheet date.

Which of the following best describes the auditors' approach to the audit of accrued liabilities? Multiple Choice Test computations. Confirmation. Observation. A low planned assessed level of control risk.

Test computations.

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

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

Operating control over check signing normally should be the responsibility of the: Multiple Choice Secretary. Chief accountant. Vice-president of marketing. Treasurer.

Treasurer.

When the auditors discover an understatement of liabilities, they would most likely also expect to find an: Multiple Choice Understatement of assets. Understatement of owners' equity. Overstatement of expenses. Understatement of revenues.

Understatement of assets.

Internal control over accounts payable is improved when: Multiple Choice Vendor statements are reconciled with the accounts payable ledger. Informal bids are obtained. Annual trial balance of accounts payable subsidiary ledgers is required. Payment is made upon approval of the purchasing agent.

Vendor statements are reconciled with the accounts payable ledger.