CH 8

When a company wants a vendor to deliver a large number of goods in multiple deliveries over a period of time, a(n) ___ order may be used.

blanket purchase

Purchase cut-off must be tested ______.

both at year-end and in conjunction with the observation of the physical inventory count

Required disclosures must ensure that the presentation and disclosure assertions of ______ are all met.

completeness classification occurrence

The expenditure cycle begins when an individual or department that needs supplies, equipment or services sends a ______ to the purchasing department.

purchase requisition

If occurrence controls are weak, the auditor may ______.

recalculate and test a sample of payments for monetary errors

If the risk of material misstatement is high, auditors can look for evidence that significant transactions are properly recorded using

test detail

true or false: Tax accounting control weaknesses are cited in approximately one-third of the first round of adverse opinions on internal controls under Sarbanes-Oxley requirements.

true

The objective of misstating a purchase or payable is often to ______.

understate expenses

To search for unrecorded liabilities, auditors should inspect and compare the unmatched receiving report file with the

unmatched invoice

To find evidence of unrecorded liabilities, auditors should inspect the ______.

unmatched receiving reports

Auditors should inspect the unmatched receiving report file to find evidence of ______.

unrecorded liabilities

Selecting a sample of cash disbursements from the accounting period following the balance sheet date and vouching them to supporting documents is a procedure that is useful in the search for ____

unrecorded liabilities

Confirmation letters may be sent to vendors with small or zero balances if ____ controls are weak.

completeness

Tracing the date of receipt to the date in the voucher journal provides evidence of

cutoff

Which of the following statements are correct?

Income tax expense is one of the largest items on the income statement. ASC 740 requires a higher standard for tax benefit recognition. Estimating deferred income tax assets and liabilities is very subjective.

When goods are delivered the bill of lading must be matched to the ______ on file to ensure only the correct items are received.

purchase order

Which of the following statements regarding bidding are correct?

Bids are usually requested from at least three vendors. Bids should always be secured until the bidding process is complete.

Which of the following statements are correct?

The accounts payable trial balance should agree with the accounts payable control account. Records may be kept by individual voucher instead of by vendor name.

Maintenance and repair expenses should be examined for items requiring capitalization. Most expenses can be tested along with related assets and liabilities.

Which of the following statements are correct?

Periodic reconciliations of existing assets to recorded amounts include comparing ______.

an accounts payable trial balance to the control account inventory records to a physical inventory count

The search for unrecorded liabilities is normally performed from the audit client's ______.

balance sheet date to the date of the audit report

When goods arrive at a company, they are accompanied by a ______.

bill of lading

Managements' claim that all listed PP&E items are used in operations relates to the ______ assertion.

classification

Managements' claim that no repair & maintenance expenses should be capitalized relates to the ______ assertion.

completeness

The primary relevant assertions for accounts payable are ______.

completeness cutoff valuation

The most significant risks in the the expenditure cycles generally relate to the ___ of expenditures and ____ of acquisitions.

completeness valuation

Both at year-end and in conjunction with the observation of the physical inventory count, purchase ____ must be tested.

cutoff

The principal goal of the physical inspection of PP&E is to determine actual ____ and _____

existence valuation

True or false: Generally vendor approval takes place in a single department.

false

True or false: To maintain control of the bidding process all bids should be sent directly to the purchasing agent.

false

Expenses may be improperly classified to ______.

increase total assets lower total expenses

Recalculation based on audited costs and rates ______ sufficient appropriate audit evidence for amortization of intangible assets.

is

Auditors should examine the open purchase order file to find evidence of ______.

losses on purchase commitments

According to the FASB Statement of Concepts, expenses may be recognized when they are ______.

matched to revenue incurred allocated to future periods

A blanket purchase order ______.

may enable the company to get a discount could result in automatic delivery of goods

Risks in the acquisition and expenditure cycle include ______.

noncancelable purchase agreements unrecorded liabilities

Vouching of expenses may be limited to significant items if ____ controls are strong.

occurence

Tests of the additions to the expense accounts is an example of tests of controls over _____

occurrence

If completeness controls are strong ______.

only large items need to be examined when searching for unrecorded liabilities in accounts payable

Entity-level controls over the expenditure process include ______.

proper authorization management review document security corporate values and ethics

Accounts payable confirmations may be used when ______.

the company's cash position is tight physical inventories significantly exceed general ledger inventory balance

True or false: Periodic comparison or reconciliation of existing assets to recorded amounts includes reviewing unmatched purchase orders, receiving reports and invoices.

true

The depreciation schedule is recalculated as a test of ______.

valuation or allocation

Copies of the purchase order, vendor invoice and receiving report are contained in the _____

voucher package

Which of the following statements are correct?

Evidence is more difficult to obtain to support the completeness assertion than the existence assertion. Financial statement users are typically more concerned with understated than overstated expenses and liabilities.

Auditors may discover evidence of losses on purchase commitments by examining the ____ file

open purchase order

While the "three-way match" may be the most important control in the purchasing cycle, a problem in matching the documents can lead to ______.

overstated profits unrecorded liabilities

Generally purchases should only be made from sellers on the ___ list to ensure the seller is authorized by the organization.

approved vendor

Accounts payable confirmations ______.

are not required by auditing standards may be used when internal controls are weak

Specific assertions related to the valuation of PP&E include ______.

asset cost includes freight-in goodwill is not impaired depreciation is properly allocated

When a company wants a vendor to deliver a large number of goods in multiple deliveries over a period of time, a(n)

blanket purchase

When considering assertions and obtaining evidence about accounts payables and other liabilities, auditors must emphasize the _____ assertion.

completeness

Because management may desire to improve the books by not recording an obligation in the correct period, _____ and _____ are important assertions for accounts payable.

cutoff completeness

Continual management review, proper authorizations, and a place where inappropriate behavior may be reported are all

entity

To reflect the consumption of economic benefits, GAAP prescribes that ___ be charged to income

expenses

Fraud issues in the purchasing department include the risk of ______.

fictitious invoices kickbacks misdirected purchases

Once an appropriate vendor is selected for the goods or services, a ______ is sent to the selected vendor.

purchase order

Once an appropriate vendor is selected for the goods or services, a(n) ____is sent to the selected vendor

purchase order

When goods are received, the receiving department should ______.

receive a blind purchase order without quantity numbers

A "shell" company is used by an employee to ______.

receive fictitious payments

When goods are delivered they are inspected and a ______ is prepared.

receiving report

When auditing depreciation, auditors must evaluate the useful lives and ___ assigned by the clients for reasonableness.

residual value

Auditors should inspect the unmatched invoice file and compare it with the unmatched receiving report file to determine ______.

unrecorded liabilities

Because individuals may attempt to run personal expenses through accounts payable, the ______ of expenses is a significant risk in the expenditures cycle.

validity

Accounts that are debited, who verified the invoice and reconciled the purchase order, receiving report and vendor invoice are included on the ____ attached by the accounts payable department.

voucher

The two primary means of gathering evidence to support management's assertions with respect to PP&E are physical inspection and

vouching