Exam 2 Chapter 14

Interest-bearing obligation

Which of the following should not be included in accounts payable?

Understating liabilities is generally done by failing to make an entry. The primary objective of audit procedures for liabilities is completeness.

Which of the following statements are true?

Comparing amounts owed to individual creditors to balances in prior years Computing ratios and comparing them to prior years.

Analytical procedures performed to gain assurance about the overall reasonableness of accounts payable and related accounts include:

Substantive

Auditors obtain a trial balance of accounts payable as of the balance sheet date and use this list as a starting point for ________ procedures

Shipping

Auditors should review invoices for inventory in-transit at year end. They should consider whether or not inventory shipped FOB ______ point is recorded as a liability.

Obtain an understanding of internal control over accounts payable.

Auditors will develop their planned assessed level of the risks of material misstatement for the assertions about accounts payable after they:

Unrecorded

Confirmation of accounts payable is emphasized less than confirmation of accounts receivable because the greatest risk in the audit of liabilities is the possibility of __________ amounts.

Vouching a sample of posts to the accounts payable control account Testing IT application controls

Examples of tests of control for the verification of accounts payable include:

Perform a walk-through Use confirmations → confirmations are used for substantive procedures, not for gaining an understanding of internal controls. Use a questionnaire Prepare a flowchart

Identify which of the following tasks auditors would not use to obtain an understanding of internal control control over accounts payable:

Fraud

If any inherent risks of accounts payable are related to ______, the auditors will make certain they understand the programs and controls established by management to control the risk.

Stores Purchasing Accounts payable

In an effective purchasing system, receiving reports should be sent to the ____________ departments.

Stores Accounts payable Purchasing

In an effective purchasing system, receiving reports should be sent to the _____________ departments.

Supporting vouchers, invoices, and other documents

Vouching selected creditors' balances to ________ is a substantive procedure that addresses the existence and valuation of accounts payable

Confirmation requests Lead schedule

Principal working papers include:

Purchase

The audit of accounts payable should include tests of controls and substantive procedures that verify the cutoff of _______ transactions.

General ledger

The validity of the amount in the ________ ________ control account is established by tracing posting to the voucher register and cash disbursements journal.

True

True or false: An understatement of liabilities will exaggerate the financial strength of a company and conceal fraud as effectively as an overstatement of assets.

True

True or false: Auditors may test controls by vouching a sample of postings through the audit trail both from the posting to the source document, and in reverse order from the source document up to the general ledger posting.

True

True or false: the most effective means of disclosing unrecorded accounts payable is comparing cash payments after the balance sheet date with the accounts payable trial balance.

Substantive

When the auditors have found subsidiary records of accounts payable not in agreement with the general ledger control account, haphazard use of receiving reports and vouchers, and purchase transactions not recorded until payment is made, they should undertake extensive _______ work.