Auditing Chapter 14

Most of the audit work on accounts payable is typically performed: a. Before the balance sheet date. b. At the balance sheet date in conhubnction with inventory cutoff tests. c. After the balance sheet date. d. Simultaneously with the audit of accrued liabilities.

C

A client 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. a. Footing the purchases journal. b. Reconciling vendors' monthly statements with subsidiary ledger payable ledger accounts. c. Tracing totals from the purchases journal to the ledger accounts. d. Sending written quarterly confirmation to all receivables.

b

In performing a test of controls, the auditors vouch for a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test? a. Completeness. b. Existence. c. Valuation. d. Rights.

b

To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the: a. Authorized members of the audit committee. b. Accounting department. c. Individual who signs the checks. d. Chief executive officer.

c

Which of the following is an example of an accrued liability? a. Accounts payable. b. Notes payable. c. Product warranty liability. d. Prepaid insurance.

c

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

c

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: a. This is a duplication of cutoff tests. b. Accounts payable balances the balance sheet date may not be paid before the audit is completed. c. Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment. d. There is likely to be other reliable external evidence available to support the balances.

d

The least likely approach in auditing management's estimate relating to an accrued liability is to: a. Independently develop an estimate of the amount to compare to management's estimate. b. Review and test management's process of developing the estimate. c. Review subsequent events or transactions bearing on the estimate. d. Send confirmations relating to the estimate.

d

An audit of the balance in the accounts payable account is ordinarily not designed to: a. Detect accounts payable that are substantially past due. b. Verify that accounts payable were properly authorized. c. Ascertain reasonableness of recorded liabilities. d. Determine that all existing liabilities at the balance sheet date have been recorded.

a

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

a

In an audit, the valuation of year-end accounts payable is most likely addressed by: a. Confirmation. b. Examination of cash disbursements immediately prior to year-end. c. Examination of cash disbursements immediately subsequent to year-end. d. Analytical procedures applied to vouchers payable at year-end.

a

Ordinarily, the most significant assertion relating to accounts payable is: a. Completeness. b. Existence. c. Presentation. d. Valuation.

a

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

a

Unrecorded liabilities are most likely to be found during the review of which of the following documents? a. Unpaid Bills b. Unmatched sales invoices c. Bills of Lading d. Shipping records

a

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

a

Which of the following best explains why accounts payable confirmation procedures are not always used? a. Confirmations are better at identifying overstatements than understatements, and overstatements are not typically the major concern with accounts payable. b. Accounts payable generally are immaterial and may be audited through using analytical procedures. c. Creditors will press for payment when they receive the confirmation. d. Inclusion of representations on accounts payable in the client representation letter eliminates the need in most situations.

a

When confirming accounts payable, the approach is most likely to be one of: a. Selecting the accounts with the largest balances at year-end, plus a sample of other accounts. b. Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. c. Selecting a random sample of accounts payable at year-end. d. Confirming all accounts.

b

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

b

Which of the following is a control procedure that is usually applied to accounts payable? a. Periodic confirmation of accunts payable. b. Mailing statements to vendors detailing their account. c. Perioidic aging of accounts payable. d. Reconiliation of vedor statements with accounts payable.

d

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 appear on a subsidiary trial balance of accounts payable. b. Examine unusual relationships between monthly accounts payable balances and recorded purchases. 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 selected cash disbursements in the period subsequent to year-end.

d