ACC9821 Auditing Chapter 11 Homework PDF

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ACC9821 Auditing Chapter 11 Homework 1. Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases? A. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for? B. Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher? C. Are purchase requisitions prenumbered and independently matched with vendor invoices? D. Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions? 2. To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all A. B. C. D.

purchase orders. vendor invoices. receiving reports. canceled checks.

3. Which of the following audit procedures is least likely to detect an unrecorded liability? A. B. C. D.

Mailing of standard bank confirmation forms. Reading of the minutes of meetings of the board of directors. Analysis and recomputation of depreciation expense. Analysis and recomputation of interest expense.

4. The cutoff assertion for accounts payable includes A. B. C. D.

determining whether all accounts payable are properly classified in the financial statements. determining whether all accounts payable are recorded in the proper period. determining whether all accounts payable actually are liabilities. determining whether all accounts payable are recorded.

5. Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the entity's employees? A. B. C. D.

Test footings in the accounts payable ledger. Mail confirmations for selected account balances. Reconcile unpaid invoices to vendors' statements. Prepare a schedule of accounts payable.

6. Which of the following procedures is least likely to be performed before the balance sheet date? A. B. C. D.

Observation of inventory. Test of internal control over cash. Confirmation of receivables. Search for unrecorded liabilities. 1

7. In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is A. B. C. D.

cancelation of the supporting documents. approval of the voucher for payment. entry of the check amount in the check register. entering of the voucher into the voucher register.

8. An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by A. B. C. D.

inquiry and analytical procedures. confirmation and observation. observation and inquiry. analytical procedures and confirmation.

9. To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all A. B. C. D.

purchase requisitions. receiving reports. payment vouchers. vendors' invoices.

10. Tests of controls for the occurrence assertion for purchases include all of the following except: A. B. C. D.

tracing a sample of vouchers to purchases journal. evaluating proper segregation of duties. testing a sample of vouchers for matching receiving reports. testing a sample of vouchers for an authorized purchase order.

11. The cash disbursements journal is also called the

A. B. C. D.

voucher register. purchases journal. accounts payable subsidiary ledger. check register.

12. Purchase cutoff procedures should be designed to test whether all inventory A. B. C. D.

purchased and received before the end of the year was recorded. ordered before the end of the year was received. owned by the entity is in the possession of the entity at the end of the year. purchased and received before the end of the year was paid for.

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13. Which of the following control activities is not usually performed in the accounts payable department? A. B. C. D.

Accounting for unused prenumbered purchase orders and receiving reports. Matching the vendor's invoice with the related receiving report. Indicating the asset and expense accounts to be debited. Approving vouchers for payment by having an authorized employee sign the vouchers.

14. Substantive procedures to examine the completeness assertion for accounts payable include A. B. C. D.

comparing dates on vouchers to dates in the purchases journal. selecting a sample of vouchers and tracing them to the purchases journal. recomputing the mathematical accuracy of a sample of vendor invoices. selecting a sample of vouchers and agreeing them to authorized purchase orders.

15. An entity erroneously recorded a large purchase twice. Which of the following internal controls would be most likely to detect this error in a timely and efficient manner? A. B. C. D.

Tracing totals from the purchases journal to the ledger accounts. Footing the purchases journal. Sending written quarterly confirmations to all vendors. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.

16. Accounts payable confirmations are used to test A. B. C. D.

only the existence audit assertion. both the existence and completeness audit assertions. either existence or completeness, depending upon the response rate. only the completeness audit assertion.

17. Which of the following describes a permanent difference? A. B. C. D.

A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes. A timing difference between the recognition of revenue or expense under GAAP and tax purposes. A difference arising from an uncertain tax position. A difference that will be corrected in an amended tax return.

18. In a properly designed purchasing process, the same employee most likely would match vendors’ invoices with receiving reports and also A. B. C. D.

reconcile the accounts payroll ledger. cancel vendors' invoices after payment. post the detailed accounts payable records. recompute the calculations on vendors' invoices.

19. Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the A. receiving department. 3

B. accounts payable department. C. purchasing agent. D. department that initiated the requisition. 20. When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be A. B. C. D.

vendors with whom the entity has previously done business. invoices filed in the entity's open invoice file. payees of checks drawn in the month after year-end. amounts recorded in the accounts payable subsidiary ledger.

21. The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because A. accrued liability balances are less material than accounts payable balances. B. evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts payable is readily available. C. accrued liabilities at year-end will become accounts payable during the following year. D. accrued liabilities usually pertain to services of a continuing nature, while accounts payable are the result of completed transactions. 22. If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to A. B. C. D.

all vendors. primarily vendors with small or zero accounts payable balances. a random sample of all vendors. primarily vendors with large accounts payable balances.

23. Assertions about classes of transactions and events for the period under audit include A. B. C. D.

occurrence, completeness, and valuation and allocation. existence, completeness, and accuracy. occurrence, completeness, and cutoff. existence, completeness, and classification.

24. The mailing of disbursement checks and remittance advices should be controlled by the employee who A. B. C. D.

approved the vouchers for payment. signed the checks last. verified the mathematical accuracy of the vouchers and remittance advices. matched the receiving reports, purchase orders and vendors' invoices.

25. The authority to accept incoming goods in receiving should be based on a(an) A. vendor's invoice. B. bill of lading. C. materials requisition. 4

D. approved purchase order. 26. For effective internal control purposes, which of the following individuals should be responsible for mailing signed checks? A. B. C. D.

Payroll clerk. Treasurer. Accounts payable clerk. Receptionist.

27. When goods are received, the receiving clerk should match the goods with A. B. C. D.

the purchase order and the requisition form. the vendor shipping document and the purchase order. the vendor invoice and the vendor shipping document. the vendor invoice and the purchase order.

28. Unrecorded liabilities are most likely to be found during the review of which of the following documents? A. B. C. D.

Unmatched sales invoices. Unpaid bills. Bills of lading. Shipping records.

29. Which of the following is the most effective control activity to detect vouchers prepared for the payment of goods that were not received? A. Matching of purchase order, receiving report, and vendor invoice for each voucher in the accounts payable department. B. Verification of vouchers for accuracy and approval in the internal audit department. C. Counting of goods upon receipt in the storeroom. D. Comparison of goods received with goods requisitioned in the receiving department. 30. Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? A. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices. B. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. C. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. D. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions. 31. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

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A. Investigation of payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. B. Examination of unusual relationships between monthly accounts payable balances and recorded cash payments. C. Reconciliation of vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. D. Review of cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. 32. An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all A. B. C. D.

vendors' invoices. receiving reports. canceled checks. merchandise received.

33. An entity's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system? A. Acquisition of materials is not made from one vendor or one group of vendors. B. Commitments for all purchases are made only after established competitive bidding procedures are followed. C. Accounts payable are not materially understated. D. Authority to incur liabilities is restricted to one designated person. 34. An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive procedure most likely was to A. B. C. D.

identify unusually large purchases that should be investigated further. test whether payments were for goods actually ordered. verify that cash disbursements were for goods actually received. determine that purchases were properly recorded.

35. As an in-charge auditor, you are reviewing a summary of control weaknesses in cash disbursement procedures. Which one of the following weaknesses, standing alone, should cause you the least concern? A. B. C. D.

Treasurer fails to establish validity of names and addresses of check payees. Cash disbursements are made directly out of cash receipts. Checks are signed by only one person. Signed checks are distributed by the controller to approved payees.

36. Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of A. cutoff. B. classification. 6

C. accuracy. D. occurrence. 37. A product cost is A. B. C. D.

recognized in the period in which cash is spent. recognized during the period in which a liability is incurred. an expense allocated by a systematic procedure. recognized in the period during which related revenue is recognized.

38. Purchase cutoff procedures should be designed to test whether or not all inventory A. B. C. D.

on the year-end balance sheet was carried at lower of cost or market. purchased and received before the year-end was recorded before year-end. on the year-end balance sheet was paid for by the company. owned by the company is in the possession of the company.

39. An entity's internal control requires that for every check request there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all A. B. C. D.

approved vouchers. purchase orders. canceled checks. receiving reports.

40. Which of the following accounts is not affected by cash disbursement transactions? A. B. C. D.

Purchase discounts. Accounts payable. Purchase returns. Cash.

41. Substantive procedures to examine the cutoff assertion for accounts payable include A. selecting a sample of vouchers and agreeing them to authorized purchase orders. B. recomputing the mathematical accuracy of a sample of vendor invoices. C. selecting a sample of receiving reports around year-end and comparing dates on related vouchers to dates in the purchases journal. D. selecting a sample of vouchers and agreeing them to the purchases journal.

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