Auditing II - Chapter 11

This document includes the description, quality, and quantity of, and other information on, the goods or services being purchased. It also indicates who approved the acquisition and represents the authorization to purchase the goods or services.

Purchase Order

This document requests goods or services for an authorized individual or department w/in the entity.

Purchase Requisition

This document records the receipt of goods. It is normally a copy of the purchase order w/ the quantities omitted.

Receiving report

Purchase cutoff procedures should be designed to test whether all inventory: a. purchased and received before the end of the year was recorded. b. owned by the entity is in the possession of the entity at the end of the year. c. ordered before the end of the year was received. d. purchased and received before the end of the year was paid for.

a

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all: a. receiving reports b. canceled checks c. purchase orders d. vendor invoices

a

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 chief financial officer waived approvals on all checks to one vendor to expedite payment. b. The entity announced that the internal audit function would be eliminated after the balance sheet date. c. The audit committee chairperson unexpectedly resigned during the year under audit. d. The frequency of accounts payable check runs was changed from biweekly to weekly.

a

Which of the following internal control procedures most likely addresses the completeness assertion for inventory? a. Receiving reports are prenumbered and periodically reconciled. b. Employees responsible for custody of finished goods do not perform the the receiving function. c. Work in process account is periodically reconciled with subsidiary records. d. There is a separation of duties between payroll department and inventory account personnel.

a

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? a. compare cash payments occurring after the balance sheet date w/ the accounts payable trial balance. b. Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders. c. Reconcile receiving reports w/ related cash payments made just prior to eyar-end. d. contrast the ratio of accounts payable to purchases w/ the prior year's ratio.

a

Which of the following test(s) of details of transactions can be used as a dual-purpose test in conjunction with tests of controls? a. Test a sample of purchase requisitions for proper authorization b. Obtain selected vendors' statements and reconcile to vendor accounts c. Review results of confirmations of selected accounts payable d. Obtain listing of accounts payable and compare total to general ledger

a

Which of the following control activities is not usually performed in the vouchers payable department? a. Controlling the mailing of the check and remittance advice. b. Having an authorized person approve the voucher. c. Determining the mathematical accuracy of the vendor's invoice. d. Matching the receiving report w/ the purchase order.

a. Controlling the mailing of the check and remittance advice.

Which of the following is the most effective control activity to detect vouchers that were prepared for the payment of goods that were not received? a. Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department. b. Compare goods received w/ goods requisitioned in receiving department. c. Count goods upon receipt in storeroom. d. Verify vouchers for accuracy and approval in internal audit department.

a. Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department.

Which of the following controls would be most effective in assuring that recorded purchases are free of material errors. a. Purchase orders, receiving reports, and vendor's invoices are independently matched in preparing vouchers. b. Receiving reports require the signature of the individual who authorized the purchase. c. Vendor's invoices are compared w/ purchase orders by an employee who is independent of the receiving department. d. The receiving department compares the quantity ordered on purchase orders w/ the quantity received on receiving reports.

a. Purchase orders, receiving reports, and vendor's invoices are independently matched in preparing vouchers.

Which of the following procedures would best detect a liability omission by management? a. Review purchase contracts and other legal documents. b. Review articles of incorporation and corporate bylaws. c. Inquiry of senior support staff and recently departed employees. d. Review and check mathematical accuracy of financial statements.

a. Review purchase contracts and other legal documents.

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 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. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. d. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.

a. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: a. stamped "paid" by the check signer. b. approved for authorized purchases. c. supported by a vendor's invoice. d. prenumbered and accounted for.

a. stamped "paid" by the check signer

A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Clerk 1: Reviews vendor invoices for proper signature approval. Clerk 2: Enters vendor invoices into the accounting system and verifies payment terms. Clerk 3: Posts entered vendor invoices to the accounts payable ledger for payment and mails checks. Treasurer: Reviews the vendor invoices and signs each checks. Which of the following would indicate a weakness in the company's internal control? a. Clerk 2 reconciles the accounts payable ledger w/ the general ledger monthly. b. clerk 3 mails the checks and remittances after they have been signed. c. The treasurer uses a stamp for signing checks. d. Clerk 1 opens all of the incoming mail.

b

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 purchases that should be investigated further. b. Determine that purchases were properly recorded. c. Verify that cash disbursements were for goods actually received. d. Test whether payments were for goods actually ordered.

b

If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to: a. a random sample of all vendors b. primarily vendors with small or zero accounts payable balances c. primarily vendors with large accounts payable balances d. all vendors

b

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be: a. amounts recorded in the accounts payable subsidiary ledger. b. vendors with whom the entity has previously done business. c. invoices filed in the entity's open invoice file. d. payees of checks drawn in the month after year-end.

b

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion regarding: a. obligations b. cutoff c. accuracy d. classification

b. Cutoff

Which of the following describes a weakness in accounts payable procedures? a. The accounts payable clerk files invoices and supporting documentation after payment. b. the accounts payable manager issues purchase orders. c. The accounts payable clerk manually verifies arithmetic on the vendor invoice. d. The accounts payable system compares the receiving report to the vendor invoice.

b. The accounts payable manager issues purchase orders

The authority to accept incoming goods in receiving should be based on a (an): a. vendor's invoice b. approved purchase order c. bill of lading d. materials requisition

b. approved purchase order

An auditor suspects that certain client employees are ordering merchandise for themselves over the internet w/o recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: a. approved vouchers. b. cash disbursements. c. vendors' invoices. d. receiving reports.

b. cash disbursements

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all: a. canceled checks b. purchase orders c. receiving reports d. vendor's invoices

c. receiving reports

In searching for unrecorded liabilities, an auditor most likely would examine the: a. details of accounts receivable confirmations that are classified as "exceptions". b. files of purchase requisitions for items ordered just before year end. c. receiving reports for items received before year-end, but not yet recorded. d. cutoff bank statement for deposits recorded in the books but not by the bank.

c. receiving reports for items received before year-end, but not yet recorded.

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

c. reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

For effective internal control, the accounts payable department generally should: a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. b. Obliterate the quantity ordered on the receiving department copy of the purchase order. c. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee. d. Establish the agreement of the vendor's invoice w/ the receiving report and purchase order.

d

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the: a. unpaid voucher. b. credit memo. c. vendor invoice. d. debit memo.

d

When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be: a. invoices filed in the entity's open invoice file. b. amounts recorded in the accounts payable subsidiary ledger. c. payees of checks drawn in the month after the year end. d. vendors w/ whom the entity has previously done business.

d

Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice? a. The check signer accounts for the numerical sequence of receiving reports used in support of each payment. b. An individual independent of cash operations prepares a bank reconciliation. c. Two check signers are required for all checks over a specified amount. d. The check signer reviews and cancels the voucher packets.

d

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable? a. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for b. Confirming accounts payable balances with known suppliers who have zero balances c. Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to search for unrecorded vendor's invoices d. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports

d

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

d

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables? a. Review the responses of accounts receivable confirmations for indications of disputes w/ customers. b. Examine a sample of creditor balances to supporting invoices, receiving reports, and purchase orders. c. Reconcile receiving reports w/ related cash payments made just prior to the year-end. d. Compare cash payments made after the balance sheet date w/ the accounts payable trial balance.

d

Which of the following internal control activities is not usually performed in the vouchers payable department? a. Indicating the asset and expense accounts to be debited. b. Approving vouchers for payment by having an authorized employee sign the vouchers. c. Matching the vendor's invoice with the related receiving report. d. Accounting for unused prenumbered purchase orders and receiving reports

d. Accounting for unused prenumbered purchase orders and receiving reports

Mailing disbursement checks and remittance advices should be controlled by the employee who: a. approves the vouchers for payment b. matches the receiving reports, purchase orders, and vendor's invoices c. maintains possession of the mechanical check-signing device d. signs the check last

d. signs the check last

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: a. correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment b. accounts payable balances at the balance sheet date may not be paid before the audit is completed c. this is a duplication of cutoff tests 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

Accounts payable confirmations are used less frequently by auditors than accounts receivable confirmations: a. True b. False

True

This document is the bill from the vendor.

Vendor invoice

This document is frequently used by entities to control payment for acquired goods and services. Many times it is attached to the purchase requisition, purchase order, receiving report, and vendor invoice to create a voucher packet.

Voucher

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

b

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

b

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of: a. valuation and allocation b. completeness c. existence d. understandability and classification

b. completeness

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also: a. is denied access to the supporting documents. b. is responsible for mailing the checks. c. reviews the monthly bank reconciliation. d. returns the checks to accounts payable.

b. is responsible for mailing the checks.

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

b. receiving report and the purchase order.

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all: a. purchase requisitions. b. receiving reports. c. payment vouchers. d. vendor's invoices.

b. receiving reports.

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is: a. returned to the vouchers payable department. b. stamped "paid" by the check signer. c. prenumbered and accounted for. d. supported by a vendor's invoice and purchase order.

b. stamped "paid" by the check signer

In a well designed internal control, employees in the same department most likely would approve purchase orders, and also: a. authorize requisitions of goods. b. inspect goods upon receipt. c. negotiate terms w/ vendors. d. reconcile the open invoice file.

c

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of: a. existence b. valuation and allocation c. completeness d. rights and obligations

c

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of: a. occurrence b. classification c. cutoff d. accuracy

c

Under properly designed internal control, the same employee most likely would match vendors' invoices w/ receiving reports and also: a. reconcile the accounts payable ledger. b. cancel vendors' invoices after payment. c. recompute the calculations on vendors' invoices. d. post the detailed accounts payable records.

c

Which of the following procedures would an auditor least likely perform before the balance sheet date? a. Identification of related parties. b. Assessment of the risk of material misstatement. c. Confirmation of accounts payable. d. Observation of merchandise inventory.

c

Which of the following test 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. Searching for customer-returned goods that were not reported as returns. c. Examining vendor statements for amounts not reported as purchases. d. Examining reported purchase returns that appear too low.

c

Who should be responsible for preparing a purchase order, matching the receiving report and invoice with the purchase order, and paying for the related purchase? a. The manager of the department requesting the goods is responsible for preparing the purchase order, the purchasing department is responsible for matching goods, and the accounts payable department is responsible for making payment. b. The purchasing department is responsible fore preparing the purchase order, but the treasurer is responsible for matching documents and making payment. c. The purchasing department is responsible for preparing the purchase order, the receiving department is responsible for matching documents, and the accounts payable department is responsible for making payment. d. The purchasing department is responsible for preparing the purchase order, the accounts payable department is responsible for matching documents, and the treasurer is responsible for making payment.

d. The purchasing department is responsible for preparing the purchase order, the accounts payable department is responsible for matching documents, and the treasurer is responsible for making payment.