External Audit Ch. 14 Quiz

An audit of the balance in the accounts payable account is ordinarily not designed to:

Detect accounts payable due to public versus non-public companies.

An audit of the balance in the accounts payable account is ordinarily not designed to :

Detect accounts payable that are substantially past due

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. c. Purchasing department makes certain that a low-cost supplier is always chosen.

Disagree

A client's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditors' primary concern with respect to liabilities resulting from the procurement system?

Accounts payable are not materially understated.

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. b. Proper authorization of requisitions by department head is required before purchase orders are prepared.

Agree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. f. Secure facilities limit access to the goods during the receiving activity.

Agree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. o. The purchasing, receiving, and accounts payable functions are segregated.

Agree

Under which of the following circumstances would it be advisable for the auditors to confirm accounts payable with creditors?

Creditor statements are not available and internal control over accounts payable is unsatisfactory.

In performing a test of controls, the auditors vouch a sample of entires in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test?

Existence

Which of the following procedures relating to the audit of accounts payable would the auditors be most likely to delegate entirely to the clients' employees?

Prepare a schedule of accounts payable

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the :

Receiving report and the purchase order.

Which of the following procedures is least likely to be completed before the balance sheet date?

Search for unrecorded liabilities

Which of the following procedures is least likely to be performed before the balance sheet date?

Search for unrecorded liabilities.

The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because:

Accrued liabilities usually pertain to services of a continuing nature while accounts payable are the result of completed transactions.

The auditors of SSC Company, a nonpublic company, are working on both audit objectives for the various accounts and documentation requirements. The auditors have established the objectives listed below as a part of the audit. *Substantive Procedures 1 .Obtain a trial balance of payables and reconcile with the accounts payable subsidiary ledger. 2. Vouch sales from throughout the year. 3. Vouch purchases recorded after year-end. 4. Vouch sales recorded shortly before year-end. 5. Vouch major warranty expenses paid during 20X8. 6. Inquire of management concerning the existence of related party transactions. 7. Test the computations made by the client to set up the accrual. 8. Test the reasonableness of general and administrative labor rates. 9. Confirm outstanding year-end balances of payables. 10. Confirm warranty expenses payable as of year-end. For each objective, select a substantive procedure (from the list of substantive procedures) that will help achieve that objective. Each of the procedures may be used once, more than once, or not at all. d. Determine that the valuation of warranty loss reserves is measure in accordance with GAAP.

7. Test the computations made by the client to set up the accrual.

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. e. The adequacy of each vendor's past record as a supplier is verified.

Agree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. k. Accounts payable department personnel recompute the mathematical accuracy of each invoice.

Agree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. n. All supporting documentation is required for payment and is made available to the treasurer.

Agree

Bell's accounts payable clerk has a brother who is one of Bell's vendors. The brother will often invoice Bell twice for the same delivery. The accounts payable clerk removes the receiving report for the first invoice from the paid voucher file and uses it for support of payment for the duplicate invoice. The most effective procedure for preventing this activity is to:

Cancel vouchers and supporting papers when payment is made.

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. m. All supporting documentation is marked "paid" by accounts payable immediately prior to making it available to the treasurer.

Disagree

In applying audit procedures and evaluating the results of those procedures, auditors may encounter specific information that may raise a question concerning the existence of noncompliance with laws and related party transactions. Indicate whether each of the following is more likely related to noncompliance with a law or a related party transaction. c. Unexplained payments have been made to government officials.

Noncompliance with laws

Listed below are types of errors and fraud that might occur in financial statements and audit procedures. Match the error or fraud with the audit procedure that is most likely to detect the error or fraud. Replies may be used more than once. 2. Shortly prior to year-end, an employee stole goods received from a vendor before receiving report had been prepared, payment for the goods was made prior too year-end.

Vouching cash disbursements recored prior to year-end

Listed below are types of errors and fraud that might occur in financial statements and audit procedures. Match the error or fraud with the audit procedure that is most likely to detect the error or fraud. Replies may be used more than once. 3. The existence of a fictitious account payable in an audit in which accounts payable are not confirmed.

Vouching selected accounts on the year-end trial balance of accounts payable

When confirming the accounts payable , the approach is most likely to be one of :

selecting the accounts of companies with whom the client has perviously done the most business plus a sample of other accounts.

The least likely approach in auditing managements estimate relating to an accrued liability is to

send confirmations relating to the estimate

The auditors of SSC Company, a nonpublic company, are working on both audit objectives for the various accounts and documentation requirements. The auditors have established the objectives listed below as a part of the audit. *Substantive Procedures 1 .Obtain a trial balance of payables and reconcile with the accounts payable subsidiary ledger. 2. Vouch sales from throughout the year. 3. Vouch purchases recorded after year-end. 4. Vouch sales recorded shortly before year-end. 5. Vouch major warranty expenses paid during 20X8. 6. Inquire of management concerning the existence of related party transactions. 7. Test the computations made by the client to set up the accrual. 8. Test the reasonableness of general and administrative labor rates. 9. Confirm outstanding year-end balances of payables. 10. Confirm warranty expenses payable as of year-end. For each objective, select a substantive procedure (from the list of substantive procedures) that will help achieve that objective. Each of the procedures may be used once, more than once, or not at all. b. Establish the completeness of recorded accounts payable.

3. Vouch purchases recorded after year-end.

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. j. Requisitions, purchase orders, and receiving reports are matched with vendor invoices as to quantity and price.

Agree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. d. Purchasing department assure that requisitions are within budget limits before purchase orders are prepared.

Agree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. l. The voucher register is independently reconciled to the control accounts monthly by the originators of the related vouchers.

Disagree

In applying audit procedures and evaluating the results of those procedures, auditors may encounter specific information that may raise a question concerning the existence of noncompliance with laws and related party transactions. Indicate whether each of the following is more likely related to noncompliance with a law or a related party transaction. e. A purchasing agent of the company has received large cash payments from a major vendor of the company.

Noncompliance with laws

As part of your first audit of the financial statements of Marina del Rey, Inc., you have decided to confirm some of the accounts payable. You are now in the process of selecting the individual companies to whom you will send accounts payable confirmation requests. Among the accounts payable you are considering are the following: Comp. A/P Purchases Dayco — $1,980,000 Gearbox $22,650 $46,100 Landon $65,000 $75,000 Western $190,000 $2,123 b. Assume that you are selecting accounts receivable to be confirmed. Assume also that the four companies listed above are customers of your client rather than suppliers and that the dollar amounts are accounts receivable balances and total sales for the year. Which two companies would you select as the most important to confirm?

Western Supply, Landon Co.

The auditors of SSC Company, a nonpublic company, are working on both audit objectives for the various accounts and documentation requirements. The auditors have established the objectives listed below as a part of the audit. *Substantive Procedures 1 .Obtain a trial balance of payables and reconcile with the accounts payable subsidiary ledger. 2. Vouch sales from throughout the year. 3. Vouch purchases recorded after year-end. 4. Vouch sales recorded shortly before year-end. 5. Vouch major warranty expenses paid during 20X8. 6. Inquire of management concerning the existence of related party transactions. 7. Test the computations made by the client to set up the accrual. 8. Test the reasonableness of general and administrative labor rates. 9. Confirm outstanding year-end balances of payables. 10. Confirm warranty expenses payable as of year-end. For each objective, select a substantive procedure (from the list of substantive procedures) that will help achieve that objective. Each of the procedures may be used once, more than once, or not at all. c. Determine that the presentation and disclosure of accounts payable are appropriate.

6. Inquire of management concerning the existence of related party transactions.

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. i. The requisition department head independently verifies the quantity and quality of the goods received.

Agree

Which of following audit procedures is least likely to detect an unrecorded liability?

Analysis and recomputation of depreciation expense.

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

Cash disbursements and invoice verification

Ordinarily, the most significant assertion relating to accounts payable is :

Completeness

In an audit, the valuation of year-end accounts payable is most likely addressed by:

Confirmation

As part of your first audit of the financial statements of Marina del Rey, Inc., you have decided to confirm some of the accounts payable. You are now in the process of selecting the individual companies to whom you will send accounts payable confirmation requests. Among the accounts payable you are considering are the following: Comp. A/P Purchases Dayco — $1,980,000 Gearbox $22,650 $46,100 Landon $65,000 $75,000 Western $190,000 $2,123 a. Which two of the above four accounts payable would you select as the most important to confirm?

Dayco, Inc., Western Supply

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. a. The department head of the requisitioning department selects the appropriate supplier.

Disagree

The auditors of SSC Company, a nonpublic company, are working on both audit objectives for the various accounts and documentation requirements. The auditors have established the objectives listed below as a part of the audit. *Substantive Procedures 1 .Obtain a trial balance of payables and reconcile with the accounts payable subsidiary ledger. 2. Vouch sales from throughout the year. 3. Vouch purchases recorded after year-end. 4. Vouch sales recorded shortly before year-end. 5. Vouch major warranty expenses paid during 20X8. 6. Inquire of management concerning the existence of related party transactions. 7. Test the computations made by the client to set up the accrual. 8. Test the reasonableness of general and administrative labor rates. 9. Confirm outstanding year-end balances of payables. 10. Confirm warranty expenses payable as of year-end. For each objective, select a substantive procedure (from the list of substantive procedures) that will help achieve that objective. Each of the procedures may be used once, more than once, or not at all. a. Determine the existence of year-end recorded accounts payable and that the client has obligations to pay these liabilities.

9. Confirm outstanding year-end balances of payables.

Which of the following is the most efficient audit procedure for the detection of unrecorded liabilities?

Compare cash disbursements in the subsequent period with the accounts payable trial balance at year-end.

In order to efficiently establish the accuracy of the accounts payable cutoff, the auditors will be most likely to:

Coordinate cutoff tests with physical inventory observation.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because:

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

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. g. Receiving department compares its count of the quantity of goods received with that listed on its copy of the purchase order.

Disagree

Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart by making certain inquiries of the controller. He has concluded that the internal control over purchasing, receiving, and accounts payable is strong and has provided the following list of what he refers to as internal control strengths. Review his list and for each internal control strength indicate whether you agree or disagree that each represents a strength. h. A receiving report is required for all purchases, including purchases of services.

Disagree

Which of the following is the best audit procedures for determining the existence of unrecorded liabilities?

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

To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the :

Individual who signs the checks

A client is 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?

Reconciling vendors' monthly statement with subsidiary payable ledger accounts.

In applying audit procedures and evaluating the results of those procedures, auditors may encounter specific information that may raise a question concerning the existence of noncompliance with laws and related party transactions. Indicate whether each of the following is more likely related to noncompliance with a law or a related party transaction. a. Purchases have been made from a vendor at a price well above the market price for the goods involved.

Related party

In applying audit procedures and evaluating the results of those procedures, auditors may encounter specific information that may raise a question concerning the existence of noncompliance with laws and related party transactions. Indicate whether each of the following is more likely related to noncompliance with a law or a related party transaction. b. A purchasing agent's spouse has the same name as a major vendor of the company.

Related party

In applying audit procedures and evaluating the results of those procedures, auditors may encounter specific information that may raise a question concerning the existence of noncompliance with laws and related party transactions. Indicate whether each of the following is more likely related to noncompliance with a law or a related party transaction. d. The company exchanged certain real estate property for similar real estate property.

Related party

Listed below are types of errors and fraud that might occur in financial statements and audit procedures. Match the error or fraud with the audit procedure that is most likely to detect the error or fraud. Replies may be used more than once. 5. A purchase was recorded before year-end which should have been recorded after year-end and payment of it has not yet occurred.

Reviewing receiving reports issued shortly before and after year-end

Listed below are types of errors and fraud that might occur in financial statements and audit procedures. Match the error or fraud with the audit procedure that is most likely to detect the error or fraud. Replies may be used more than once. 1. the existence of an unrecorded accrued payable not due for payment for several months.

Reviewing union contracts

Listed below are types of errors and fraud that might occur in financial statements and audit procedures. Match the error or fraud with the audit procedure that is most likely to detect the error or fraud. Replies may be used more than once. 4. The existence of related party payables

Reviewing unusual transactions during the year

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because :

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