Audit Ch 8

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 from the purchasing system? a. Accounts payable are not materially understated. 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 understated.

When confirming accounts payable, emphasis should be put on what kind of accounts? a. Accounts with small or zero balances b. All accounts should be equally emphasized. c. Accounts with large balances d. Accounts listed in the accounts payable subsidiary

a. Accounts with small or zero balances

In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for a. Completeness. b. Occurrence. c. Classification. d. Cutoff.

a. Completeness.

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries? a. Personnel b. Treasurer c. Controller d. Payroll

a. Personnel

Which of the following audit procedures is best for identifying unrecorded accounts payable? a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply 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 payables apply to the prior period

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. The official who signs the check should compare the check with the voucher and should stamp "PAID" on the voucher documents. b. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. c. Vouchers should be prepared by individuals who are responsible for signing disbursement checks. d. Disbursement vouchers should be approved by at least two responsible management officials.

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

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 from the purchasing system? a. Commitments for all purchases are made only after established competitive bidding procedures are followed. b. Accounts payable are not materially understated. c. Authority to incur liabilities is restricted to one designated person. d. Acquisition of materials is not made from one vendor or one group of vendors.

b. Accounts payable are not materially understated.

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

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

An audit team would most likely examine the detail support for charges to which of the following accounts? a. Cost of goods sold. b. Legal expense. c. Payroll expense. d. Supplies expense.

b. Legal expense.

Which of the following situations represents an internal control weakness in the payroll department? a. Payroll department personnel are rotated in their duties. b. Paychecks are distributed by the employees' immediate supervisor. c. Payroll records are reconciled with quarterly tax reports. d. The timekeeping function is independent of the payroll department.

b. Paychecks are distributed by the employees' immediate supervisor.

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 purchasing department should compare the purchase requisition with the purchase order. 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 accounts payable department should compare the receiving report to the purchase invoice before creation of the voucher.

b. 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 (C.O.D) 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 requisitions. b. Purchase orders. c. Cash receipts. d. Perpetual inventory records.

b. Purchase orders.

Under properly designed internal control, the same employee most likely would match vendors' invoices with receiving reports and also: a. Post the detailed accounts payable records. b. Recompute the calculations on vendors' invoices. c. Reconcile the accounts payable ledger. d. Cancel vendors' invoices after payment

b. Recompute the calculations on vendors' invoices.

Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure? a. Purchase orders are not prepared for services acquired directly under authorization of department heads. b. The same person authorizes voucher packages and signs checks. c. Unacceptable goods are not scheduled on receiving reports. d. The same person signs checks and stamps vouchers PAID.

b. The same person authorizes voucher packages and signs checks.

Which of the following control objectives is achieved by reviewing and testing control procedures over physical inventory count? a. Validation of purchase transactions. b. Verification of existence of inventory. c. Authorization of the manufacturing orders. d. Posting and summarization of inventory transactions

b. Verification of existence of inventory.

For the copy of the purchase order that goes to the receiving department, it is best to a. leave off the description of the goods ordered. b. leave off the quantity of the goods ordered. c. leave off the name of the vendor. d. have the receiving department forward all copies of the purchase order to accounts payable.

b. leave off the quantity of the goods ordered.

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.

c. Completeness.

Which of the following client control activities is not usually performed in the vouchers payable (accounts payable) department? a. Determining the mathematical accuracy of the vendors' invoices b. Writing checks for the treasurer's signature to take advantage of purchase discounts c. Controlling the mailing of the check and remittance advice d. Checking the prices on the vendor's invoice

c. Controlling the mailing of the check and remittance advice

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to: a. Identify unusually large purchase that should be investigated further. b. Verify the cash disbursements were for goods actually received. c. Determine that purchases were properly recorded. d. Test whether payments were for goods actually ordered.

c. Determine that purchases were properly recorded.

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 choices would overstate net income.

c. Failing to record a check paying an item in Vouchers Payable.

Which of the following accounts would most likely be audited in connection with a related balance-sheet account? a. Payroll Expense. b. Legal Expense. c. Property Tax Expense. d. Research and Development.

c. Property Tax Expense.

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. Canceled checks. b. Vendors' invoices. c. Receiving reports. d. Purchase orders.

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 choices are correct.

c. Refusal by the purchasing department to approve the vendor.

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

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

c. Search for unrecorded liabilities.

Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit? a. The entity announced that the internal audit function would be eliminated after the balance sheet date. b. The audit committee chairperson unexpectedly resigned during the year under audit. c. The chief financial officer waived approvals on all checks to one vendor to expedite payment. d. The frequency of accounts payable check runs was changed from biweekly to weekly.

c. The chief financial officer waived approvals on all checks to one vendor to expedite payment.

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? a. Vouch a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. b. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. c. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices. d. Scan the cash disbursement entries recorded just before year-end for indications of unusual transactions.

c. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.

Failure to record a liability generally results in a. an understatement of profit. b. an understatement of current ratio. c. an overstatement of profit. d. an overstatement of assets.

c. an overstatement of profit.

An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to a. identify usually large purchases that should be investigated further. b. verify that cash disbursements were for goods actually received. c. determine that purchases were properly recorded. d. test whether payments were for goods actually ordered.

c. determine that purchases were properly recorded.

An auditor most likely would extend substantive tests of payroll when a. payroll is extensively audited by the state government. b. payroll expense is substantially higher than in the prior year. c. overpayments are discovered in performing tests of controls. d. employees complain to management about too much overtime.

c. overpayments are discovered in performing tests of controls.

When goods are received, the receiving clerk should match the goods with the a. purchase order and the requisition form. b. vendor's invoice and the receiving report. c. vendor's shipping document and the purchase order. d. receiving report and the vendor's shipping document.

c. vendor's shipping document and the purchase order.

Which of the following would not be included in the supporting documents for a voucher? a. Purchase order b. Vendor invoice c. Receiving report d. Blank check

d. Blank check

A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Which of the following would indicate a weakness in the company's internal control? a. Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. b. The treasurer uses a stamp for signing checks. c. Clerk 1 opens all of the incoming mail. d. Clerk 3 mails the checks and remittances after they have been signed.

d. Clerk 3 mails the checks and remittances after they have been signed.

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

d. Cost of goods sold.

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

d. Examining vendor statements for amounts not reported as purchases.

When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase a. Approvals. b. Orders. c. Requisitions. d. Invoices

d. Invoices

Which of the following accounts does not appear in the acquisition and expenditure cycle? a. Prepaid insurance. b. Purchases returns. c. Cash. d. Sales returns

d. Sales returns