AUDIT 11&13

Effective control activities for preventing summarization and posting errors include Blank______. Multiple select question. independent approval and review of general ledger account on vendor packet agreement of monthly cash disbursements journal to general ledger postings accounting for the numerical sequence of checks reconciliation of the accounts payable subsidiary records to the general ledger control account

agreement of monthly cash disbursements journal to general ledger posting reconciliation of the accounts payable subsidiary records to the general ledger control account

True or false: The main objective of the general ledger function for the purchasing process is to ensure that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records. True false question.

False

That a cash disbursement is made but not recorded in the entity's records is the major misstatement related to the Blank______ assertion. Multiple choice question. authorization occurrence presentation completeness

competeness

Accounting for the numerical sequences of purchase orders, receiving reports, vouchers and matching receiving reports with vendor invoices are controls that ensure the _________ assertion is being met for purchases.

completeness

Obtaining a listing of accounts payable, footing the listing, and agreeing it to the general ledger control account is done to determine the ______ of accounts payable.

completeness

The control activities for the Blank______ assertion relate to recording inventory that has been received. Multiple choice question. accuracy completeness occurrence authorization

completeness

The tests related to the observation of the physical inventory count provide assurance that all goods on hand are included in inventory, which is the Blank______ assertion. Multiple choice question. existence completeness accuracy cutoff

completeness

If the results of the tests of controls support the planned level of control risk, the auditor ______. does not perform substantive procedures conducts substantive procedures at the planned level reduces the level of substantive procedures

conducts substantive procedures at the planned level

Items should not be included in the physical inventory if an entity is holding them on _________.

consignment

The auditor attempts to determine whether all sales of finished goods and purchases of raw materials are recorded in the proper period in gathering evidence on the assertion for inventory.

cutoff

The auditor can examine a sample of receiving documents for a few days before and after year-end for recording of inventory to test the Blank______ assertion. Multiple choice question. accuracy completeness cutoff occurrence

cutoff

When the auditor compares the date on a receiving report with the date on the voucher, they are testing the control activities for the ________ assertion.

cutoff

An authorized person in a department requests goods with a ______. purchase requisition voucher receiving report purchase order

purchase requisition

To request goods or services, an authorized individual completes a(n) ________ ________.

purchase requisition

The main accounts affected by the auditor's achieved control risk for the purchasing process include Blank______. Multiple select question. accounts payable accounts receivable cash accrued expenses

accounts payable accrued expenses

The critical segregation of duties for preventing fictitious purchases is the separation of the requisitioning and purchasing functions from the _________ _________ and __________ functions

accounts payable disbursement

The inventory compilation is footed, and the mathematical extensions of quantity multiplied by price are verified to test the Blank______ assertion. Multiple choice question. occurrence accuracy completeness cutoff

accuracy

The purchasing function can achieve its objectives by ______. requiring competitive bidding changing vendors regularly always seeking out the lowest possible price for goods and services using multiple vendors

requiring competitive bidding using multiple vendors

That the request meets the authorization procedures implemented by the entity is the important issue in the ________ function of the purchasing process.

requisitioning

Procedures to ensure that prepared cash disbursements are recorded on a timely basis in the cash disbursements journal and the accounts payable support the assertion.

cutoff

True or false: One way the purchasing function can achieve its objectives is to find a single, trustworthy vendor for purchases.

False

True or false: Proper segregation of duties for purchasing means that the individual who can requisition goods should receive the goods but not be responsible for invoice processing.

False

If purchase transactions that do not occur are recorded ______. a liability will be recorded an incorrect payment will be made assets may be understated expenses may be overstated

a liability will be recorded an incorrect payment will be made expenses may be overstated

For a disbursement, adequate supporting documentation must verify that the ______. account distribution is appropriate vendor has been used by the organization before disbursement is for a legitimate business purpose transaction was properly authorized entire amount of the invoice is being paid

account distribution is appropriate transaction was properly authorized disbursement is for a legitimate business purpose

Substantive analytical procedures are used to examine plausible relationships among __________ ____________ and accrued expenses.

accounts payable

To ensure proper authorization of cash disbursements, an employee who prepares cash disbursements, should not Blank______. Multiple choice question. approve purchases record accounts receivable record receipt of inventory

approve purchases

Audit procedures that may be used as part of the search for unrecorded liabilities include Blank______. Multiple select question. vouching large-dollar purchase return transactions from the purchases journal asking management about control activities used at the closing process examining the files of unmatched purchase orders, receiving reports, and vendor invoices vouching large-dollar items from the purchases journal and cash disbursements journal after year-end examining the files of unmatched customer orders, shipping reports, and customer invoices

asking management about control activities used at the closing process examining the files of unmatched purchase orders, receiving reports, and vendor invoices vouching large-dollar items from the purchases journal and cash disbursements journal after year-end

Requiring that cash disbursements are not prepared unless all source documents are included in the voucher packet and approved ensures proper Blank______. Multiple choice question. classification cutoff authorization completeness

authorization

The use of a schedule or table that stipulates the amount that different levels of employees are allowed to purchase is the primary control to prevent misstatements due to improper _________

authorization

Organizations can control the requisitioning process by ______. allowing all individuals in the organization to request goods and services authorization dollar limits for different levels of employees having functional areas submit requests to the purchasing department

authorization dollar limits for different levels of employees

A possible misstatement for the accuracy assertion is that purchase transactions may Blank______. Multiple choice question. be recorded for goods that were not purchased be recorded at incorrect amounts not be recorded

be recorded at incorrect amounts

The totals from the compilation for inventory should agree with the general ledger if the entity has made a(n) -to- adjustment.

book to physical adjustment

Accuracy is an important assertion because inventory transactions that are not properly recorded result in misstatements that directly affect Blank______. Multiple choice question. all financial statement accounts cost of goods sold only both cost of goods sold and inventory inventory only

both cost of goods sold and inventory

Disbursements made by check or EFT are recorded in the ______. voucher register cash disbursements journal purchases journal check disbursements journal

cash disbursements journal

A receiving report ______. contains the date and description of goods is sent to a vendor begins the purchases process records the receipt of goods normally has quantities omitted

contains the date and description of goods records the receipt of goods normally has quantities omitted

If the results of tests of controls for the inventory system do not support the planned level of control risk, the auditor sets risk higher and risk lower

control detection

Individuals involved in the inventory management and inventory stores functions should not have access to Blank______. Multiple select question. cost accounting records inventory records the warehouse general ledger

cost accounting records inventory records general ledger

With respect to the valuation assertion for inventory, the auditor must consider Blank______. Multiple select question. classification costs or standard costs obsolete inventory lower-of-cost-or-market

costs or standard costs obsolete inventory lower-of-cost-or-market

The receiving function is responsible for ______ goods. counting paying for inspecting authorizing ordering of receiving

counting inspecting receiving

The receiving function is responsible for receiving, ______ goods received from vendors. recording, and requisitioning authorizing, and paying for counting, and inspecting

counting, and inspecting

The cash disbursements journal usually has columns for ______. credits to cash credits to accounts payable debits to accounts payable debits to cash

credits to cash debits to accounts payable

On most audits, purchase _________ is coordinated with the entity's physical inventory count.

cutoff

Preparing and signing checks for paying vendors and authorizing electronic funds transfers is the responsibility of the ________ function.

disbursement

The principal business objectives of the purchasing process are acquiring goods and services at the lowest cost consistent with quality and service requirements and ______ using cash resources to pay for those goods and services. efficiently effectively and efficiently effectively

effectively

The observation of the physical inventory is the primary audit step used to verify the Blank______ assertion. Multiple choice question. rights and obligations existence occurrence accuracy

existence

True or false: Observing that count teams have placed count tags on all inventory items provides evidence regarding the cutoff assertion.

false

True or false: In most manufacturing companies, proper valuation can be achieved by determining which manufacturing processing department has control of the inventory on the date of the physical count.

false, classification

The cycle for inventory begins when goods are purchased and stored and ends when the Blank______. Multiple choice question. work in process is complete finished goods are stored in the warehouse finished goods are shipped to customers raw materials have been purchased and inventory

finished goods are shipped to customers

Valuable evidence on unrecorded inventory or fictitious inventory may be provided by comparing the current percentage to previous years or industry data.

gross profit

When the results of testing controls do not support the planned level of control risk, detection risk will ______. have to be set lower not be affected have to be set higher

have to be set lower

Because the inventory management process interacts with the Blank______ processes, transactions involving the receipt of goods, shipment of goods, and assignment of labor costs are normally tested as part of those processes. Multiple select question. human resource management asset acquisition purchasing revenue

human purchasing revenue

Substantive analytical procedures are useful for ______.

identifying problems with overhead costs, examining the reasonableness of inventory and cogs, identifying obsolete inventory obtaining assurance on the valuation assertion

A voucher register ______. includes a column for debits accounts payable includes a column for credits accounts payable contains columns to record credits to assets and expense accounts contains columns to record debits to assets and expense accounts

includes a column for credits accounts payable contains columns to record debits to assets and expense accounts

The presence of obsolete inventory may be indicated when there is a pattern of a significant Blank______ in inventory coupled with a substantially Blank______ inventory turnover. Multiple choice question. increase; slower decrease; faster decrease; slower increase; faster

increase; slower

During the observation of the physical inventory count, the auditor should Blank______. Multiple select question. ensure that bill-and-hold items are included in the inventory count inquire about goods held on consignment obtain tag control information for testing inventory compilation

inquire about goods held on consignment obtain tag control information for testing inventory compilation ensure that no production is scheduled make sure that the entity's count teams are following the inventory count instructions ensure that there is no movement of goods during the inventory count perform test counts and record a sample of counts in the working papers ensure inventory tags are issued sequentially to departments observe the condition of the inventory

When a voucher register system is used, the subsidiary ledger ______. is a listing of the unpaid vouchers records the transactions and balance owed to vendors

is a listing of the unpaid vouchers

A vendor invoice ______. begins the purchases process is the bill from the supplier contains the quantity shipped and price is sent to a vendor

is the bill from the supplier contains the quantity shipped and price

The auditor can test purchase cutoff of accounts payable by first obtaining the number of the Blank______ issued in the current period. Multiple choice question. first vendor invoice first receiving report last vendor invoice last receiving report

last receiving report

Determining the quantity of inventory on hand is usually Blank______ complex when compared to assigning costs to value inventory. Multiple choice question. more less equally

less

To test cutoff of accounts payable, the auditor examines the receiving reports contained in the voucher packets to determine if the receipt of the goods is consistent with the recording of a(n) Blank______. Multiple choice question. expense liability revenue asset

liability

The most complex or troublesome area(s) of inventory auditing include Blank______. Multiple select question. quantity of inventory lower-of-cost-or-market assigning costs obsolescence

lower-of-cost-or-market assigning costs obsolescence

The observation of inventory Blank______. Multiple choice question. may be done by the internal auditor must be done by the external auditor only is not required to be done by an auditor

may be done

The intended purpose of substantive tests of transactions is to detect monetary ________ in the inventory account.

misstatement

If items are recorded as sold in the incorrect period, revenue, cost of goods sold and receivables will be ______ and inventory will be ______ for that period. overstated, understated correctly stated, understated overstated, correctly stated understated, overstated

overstated, understated

For the occurrence assertion, the auditor is concerned with a misstatement caused by a cash disbursement being recorded in the entity's records when no Blank______ has actually occurred. Multiple choice question. receipt of goods sale payment authorization

payment

Auditors' tests of controls around management's use of a chart of accounts, proper codes for recording inventory transactions, and the financial reporting process, including the use of a disclosure checklist, should provide adequate assurance for the Blank______ assertion. Multiple choice question. completeness presentation accuracy classification

presentation

Possible misstatements due to improper authorization include ______. purchase of unauthorized goods return of goods without authorization purchase of services at unauthorized prices purchase of goods from an alternate supplier

purchase of unauthorized goods purchase of services at unauthorized prices

To ensure an independent count of goods, the ________ _____________ is normally a copy of the purchase order with quantities omitted.

receiving report

Important disclosure issues related to inventory include Blank______. Multiple select question. related party purchases ordinary write-downs due to damage or obsolescence consigned inventory long-term purchase contracts

related party purchases consigned inventory long-term purchase contracts the cost method used for valuation LIFO liquidations the components of inventory

Proper segregation of duties for purchasing include ______. receiving from invoice processing cash receipts from general ledger requisitioning from general ledger invoice processing from shipping requisitioning from invoice processing

requisitioning from general ledger receiving from invoice processing requisitioning from invoice processing

The inventory management process is affected by the control activities previously discussed for the Blank______ processes. Multiple select question. long-term liabilities revenue long-term assets payroll purchasing

revenue purchasing payroll

A procedure to provide assurance over accuracy of inventory is Blank______. Multiple choice question. reviewing the entity's procedures for identifying excess inventory observing proper segregation of duties reviewing authorized production schedules observing physical safeguards over inventory

reviewing the entity's procedures for identifying excess inventory

A review of the voucher packets for adequate supporting documents relating liabilities to the entity provides sufficient evidence to support the Blank______ assertion. Multiple choice question. rights and obligations completeness valuation and classification existence

rights and obligations

Because entities seldom have an incentive to record liabilities they are not responsible for, there is little risk related to the assertion of Blank______. Multiple choice question. rights and obligations valuation and classification existence completeness

rights and obligations

When a purchase journal is utilized, the accounts payable _________ _______ records the transactions with, and the balances owed to, a vendor.

subsidiary ledger

A voucher is ______. the basis for recording a vendor's invoice sent to a vendor the origination of the purchases process in most entities used to control payment for purchases attached to the purchase requisition, PO, receiving report, and invoice

the basis for recording a vendor's invoice used to control payment for purchases attached to the purchase requisition, PO, receiving report, and invoice

The judgment process followed for setting control risk in the inventory management process is Blank______ the process used with other processes. Multiple choice question. different from the same as

the same as

Possible reasons for book-to-physical differences in inventory include _____. theft failure to adjust to fair market value cutoff errors unreported spoilage

theft cutoff errors unreported spoilage

The vendor statement may differ from the entity's records because of ______. timing differences in supplier recording cash receipts timing differences in shipping goods unapproved purchases recorded in the voucher register errors customer returns

timing differences in supplier recording cash receipts timing differences in shipping goods errors

If the entity fails to record a purchase that has been made, assets or expenses will be Blank______, and accounts payable will be Blank______. Multiple choice question. understated; understated overstated: overstated understated; overstated overstated; understated

understated; understated

The second major test of the completeness assertion for accounts payable and accruals is concerned with Blank______. Multiple choice question. false payments to vendors unrecorded cash inflows unrecorded liabilities

unrecorded liabilities

1. The tests of details of account balances normally provides sufficient evidence as to the proper ______ of accounts payable. 2. Reviewing a bill for an accrual provides the auditor evidence of the ______ assertion of accruals. 3. The ______ of individual accounts payable is generally not a difficult assertion to test. 4. Examining the loan agreement and the interest rate provide evidence of the _____ of accruals.

valuation

The tests of details of account balances normally provide sufficient evidence as to the proper Blank______ of accounts payable. Multiple choice question. classification valuation cutoff existence

valuation

The bill from the supplier is called a ______. receiving report purchase requisition vendor invoice purchase order

vendor invoice

The entity verifies the accuracy of its purchase records by comparing __________ __________ with the accounts payable records.

vendor statement

Reperforming the accounts payable clerk's duties on a sample of voucher packets is a test of controls for the _______ assertion.

accuracy

That the payment amount is recorded incorrectly is the potential misstatement related to the Blank______ assertion. Multiple choice question. occurrence completeness accuracy authorization

accuracy

Failure to record inventory in the proper period can result in misstatements on the Blank______. Multiple choice question. income statement only balance sheet only statement of cash flows only balance sheet and income statement

bs and is

A common control to ensure inventory disclosures are complete, relevant, and understandable is a disclosure

checklist

An important assertion for a manufacturer, but not for a merchandiser is

classification

Control activities to ensure that inventory is properly recorded as raw materials, work in process, or finished goods are important for the Blank______ assertion. Multiple choice question. occurrence presentation classification cutoff

classification

Recording purchases in the correct account is evidence regarding the Blank______ assertion. Multiple choice question. authorization completeness cutoff classification

classification

Segregating short-term and long-term payables is one of the major issues with respect to presentation and disclosure assertions about Blank______. Multiple choice question. occurrence classification cutoff completeness

classification

Use of a chart of accounts and independent approval and review of the general ledger accounts charged for acquisitions are controls for the assertion.

classification

Control activities used to identify unrecorded liabilities and accruals should be part of the __________ process for the entity

closing

The principal business objectives of the purchasing process are ______. effectively using cash resources to pay for goods and services acquiring only the highest-quality goods and services acquiring goods and services at the lowest cost

effectively using cash resources to pay for goods and services acquiring goods and services at the lowest cost

The accounts payable department ______. ensures that all goods received are recorded as assets or expenses processes purchase requisitions and purchase orders ensures that an appropriate liability is recognized processes invoices

ensures that all goods received are recorded as assets or expenses ensures that an appropriate liability is recognized processes invoices

The auditor's major concern with the Blank______ assertion is whether the recorded liabilities are valid obligations of the entity. Multiple choice question. cutoff completeness valuation existence

existence

A purchase order ______. indicates the authorization to purchase the goods or services is an internal document includes the description, quality, and quantity of the goods being purchased is created by the purchasing department after the vendor is paid

indicates the authorization to purchase the goods or services includes the description, quality, and quantity of the goods being purchased

The invoice processing function is responsible for ______. receiving, counting, and inspecting goods received from vendors matching purchase orders to receiving reports purchased goods returned to vendors comparing account distributions with established account classifications

matching purchase orders to receiving reports purchased goods returned to vendors comparing account distributions with established account classifications

When auditing inventory and cost of goods sold and the auditor chooses to follow a substantive strategy, Blank______. Multiple select question. no reliance is placed on the control activities internal control over inventory is inadequate the entity likely has an integrated cost-accounting/inventory management system the level of control risk is set at high

no reliance is placed on the control activities internal control over inventory is inadequate

To ensure accuracy, inventory management personnel should periodically review inventory on hand for Blank______ inventory. Multiple select question. obsolete specialized slow-moving high-value excess

obsolete slow-moving excess

The auditor's concern that fictitious or nonexistent purchases may have been recorded in the entity's records is present when testing the Blank______ purchase transactions. Multiple choice question. occurrence completeness presentation accuracy

occurrence

With respect to the Blank______ assertion, the auditor should also be concerned that goods may be stolen. Multiple choice question. accuracy authorization occurrence completeness

occurrence

proper segregation of duties, independent reconciliation and review of vendor statements and monthly bank reconciliations are control activities related to the ___ assertion

occurrence

Excess levels of finished goods can become obsolete, which can result in ending inventory being Blank______. Multiple choice question. understated overstated

overstated

The person who approved the purchase and the authorization to buy a good or service is included on the ______. purchase order vendor statement vendor invoice purchase requisition

purchase order

In the purchasing process, substantive tests of transactions focus mainly on the Blank______. Multiple choice question. purchases and cash disbursement transactions presentation and disclosures related to accounts payable transactions detailed amounts that make up the ending balance for accounts payable management assertions regarding internal control over purchases

purchases and cash disbursement transactions

Typically, the control activities for the completeness assertion over inventory are contained within the Blank______ process. Multiple choice question. asset purchasing revenue human resource management

purchasing

To test that cash disbursements are properly posted to the correct accounts, the entity should Blank______. Multiple choice question. reconcile vendors' monthly statements reconcile daily cash disbursements to source documents authorize the complete voucher packet prepare bank reconciliation

reconcile vendors' monthly statements

The accurate processing of inventory transactions involves Blank______. Multiple select question. recording the proper cost in cost of goods sold removing the actual number of items shipped from inventory using a periodic inventory system applying the correct price to the actual quantity received authorizing purchases by the purchasing department

recording the proper cost in cost of goods sold removing the actual number of items shipped from inventory applying the correct price to the actual quantity received

Purchase transactions for the acquisition of equipment are subject to the controls included in the purchasing process. If those controls are reliable, the auditor may be able to increase the detection risk for the affected financial statement accounts and therefore Blank______ the number of substantive procedures needed. Multiple choice question. increase reduce make no change to

reduce

Two particularly important disclosures for accounts payable and accrued expenses are ________-__________ purchase transactions and purchase _______.

related-party commitments

The auditor is Blank______. Multiple choice question. not required to observe inventory required to observe inventory that is material required to observe all inventory

required to observe inventory that is material

The major issues related to the presentation and disclosure assertion about accounts payable are Blank______. Multiple select question. segregating short-term and long-term payables identifying and reclassifying any material unpaid expenses identifying and reclassifying any material debits contained in accounts payable segregating current assets from current liabilities ensuring that different types of payables are properly classified

segregating short-term and long-term payables identifying and reclassifying any material debits contained in accounts payable ensuring that different types of payables are properly classified

To verify the existence of liabilities, the auditor can Blank______. Multiple choice question. test a sample of purchase requisitions for proper authorization vouch a sample of the items on the accounts payable listing to voucher packets test a sample of vouchers for an authorized purchase order

vouch a sample of the items on the accounts payable listing to voucher packets

Companies control payment with a ______. voucher purchase requisition receiving report purchase order

voucher