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Auditing Chapter 14
Audit Exam 3
| Question | Answer |
|---|---|
| Which of the following procedures is least likely to be completed before the balance sheet date? | Search for unrecorded liabilities. |
| An audit of the balance in the accounts payable account is ordinarily not designed to: | Detect accounts payable that are substantially past due. |
| Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? | Examine selected cash disbursements in the period subsequent to year-end. |
| Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: | There is likely to be other reliable external evidence available to support the balances. |
| 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? | Reconciling vendors’ monthly statements with subsidiary payable ledger accounts. |
| For effective internal control, the accounts payable department should compare the information on each vendor’s invoice with the: | Receiving report and the purchase order. |
| When confirming accounts payable, the approach is most likely to be one of: | Selecting the accounts of companies with whom the client has previously done the most business, plus a sample of other accounts. |
| In an audit, the valuation of year-end accounts payable is most likely addressed by: | Confirmation. |
| Ordinarily, the most significant assertion relating to accounts payable is: | Completeness. |
| The least likely approach in auditing management’s estimate relating to an accrued liability is to: | Send confirmations relating to the estimate. |
| To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the: | Individual who signs the checks. |
| In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test? | Existence. |
| The department head of the requisitioning department selects the appropriate supplier. | Weakness of Internal Control |
| Proper authorization of requisitions by department head is required before purchase orders are prepared. | Strength of Internal Control |
| Purchasing department makes certain that a low-cost supplier is always chosen. | Weakness of Internal Control |
| Purchasing department assures that requisitions are within budget limits before purchase orders are prepared. | Strength of Internal Control |
| The adequacy of each vendor’s past record as a supplier is verified. | Strength of Internal Control |
| Secure facilities limit access to the goods during the receiving activity. | Strength of Internal Control |
| Receiving department compares its count of the quantity of goods received with that listed on its copy of the purchase order. | Weakness of Internal Control |
| A receiving report is required for all purchases, including purchases of services. | Weakness of Internal Control |
| The requisitioning department head independently verifies the quantity and quality of the goods received. | Strength of Internal Control |
| Requisitions, purchase orders, and receiving reports are matched with vendor invoices as to quantity and price. | Strength of Internal Control |
| Accounts payable department personnel recompute the mathematical accuracy of each invoice. | Strength of Internal Control |
| The voucher register is independently reconciled to the control accounts monthly by the originators of the related vouchers. | Weakness of Internal Control |
| All supporting documentation is marked “paid” by accounts payable immediately prior to making it available to the treasurer. | Weakness of Internal Control |
| All supporting documentation is required for payment and is made available to the treasurer. | Strength of Internal Control |
| The purchasing, receiving, and accounts payable functions are segregated. | Strength of Internal Control |
| Determine the existence of year-end recorded accounts payable and that the client has obligations to pay these liabilities. | Confirm outstanding year-end balances of payables. |
| Establish the completeness of recorded accounts payable. | Vouch purchases recorded after year-end. |
| Determine that the presentation and disclosure of accounts payable are appropriate. | Inquire of management concerning the existence of related party transactions. |
| Determine that the valuation of warranty loss reserves is measured in accordance with GAAP. | Test the computations made by the client to set up the accrual. |
| In the audit of financial statements, the auditors are particularly concerned with possible understatement of liabilities and the possible overstatement of revenues. | True |
| To overstate net income requires the recording of an improper accounting entry. | False |
| A company's receiving department should be independent of its purchasing department. | True |
| On a monthly basis, companies typically send statements to vendors detailing their accounts payable to the vendors. | False |
| Vouching of selected accounts payable on the client's year-end trial balance is primarily a test of completeness of recorded accounts payable. | False |
| Auditors may discover unrecorded liabilities by reconciling vendors' statements with the accounts payable trial balance. | True |
| The audit procedure of confirmation by direct communication is just as important for accounts payable as it is for accounts receivable. | False |
| Auditors often confirm vendors' accounts with zero balances at year-end. | True |
| Accounts payable confirmation requests often ask the vendor to indicate the amount of the payable from the client. | True |
| Review of a client's cash payments subsequent to the balance sheet date is an important test of the completeness of recorded payables. | True |
| All unrecorded liabilities of the same dollar total have the same effect on the client's net income. | False |
| Auditors are concerned with the discovery of receivables from related parties, but not with the discovery of payables from related parties. | False |
| Accounts payable with debit balances should be reclassified as receivables. | True |
| Since it is difficult to detect unrecorded liabilities, auditors rely primarily on the client's representations that no unrecorded liabilities exist. | False |
| Confirmation of accrued liabilities is ordinarily a required audit procedure. | False |
| Unless the auditors are engaged to prepare the client's tax return, there is no need for the auditors to review the return. | False |
| The amount of accrued payroll is typically verified by confirmation with selected employees. | False |
| When testing the amount of pension liability, the auditors typically rely on a specialist. | True |
| Most of the audit work on liabilities is ordinarily performed during the interim period. | False |
| Unclaimed payroll checks should be voided and the amount should be recorded in a special liability account. | True |
| AP clerk has a brother who is a vendor. The brother invoice Bell 2x for the same delivery. Clerk removes receiving report for 1 invoice from paid voucher and uses it for support of pymt for other invoice. The most effective procedure for preventing: | cancel vouchers and supporting papers when payment is made. |
| Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: | there is likely to be other reliable external evidence available to support the balances. |
| The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because: | accrued liabilities usually pertain to services of a continuing nature while accounts payable are the result of completed transactions. |
| To avoid potential errors and fraud, well-designed internal control in the accounts payable area should include a separation of which of the following functions? | Cash disbursements and invoice verification. |
| An audit of the balance in the accounts payable account is ordinarily not designed to: | detect accounts payable due to public versus non-public companies. |
| Which of the following procedures relating to the audit of accounts payable would the auditors be most likely to delegate entirely to the client's employees? | Prepare a schedule of accounts payable. |
| Which of following audit procedures is least likely to detect an unrecorded liability? | Analysis and recomputation of depreciation expense. |
| Which of the following procedures is least likely to be performed before the balance sheet date? | Search for unrecorded liabilities. |
| Under which of the following circumstances would it be advisable for the auditors to confirm accounts payable with creditors? | Creditor statements are not available and internal control over accounts payable is unsatisfactory. |
| Which of the following is the most efficient audit procedure for the detection of unrecorded liabilities? | Compare cash disbursements in the subsequent period with the accounts payable trial balance at year-end. |
| In order to efficiently establish the accuracy of the accounts payable cutoff, the auditors will be most likely to: | coordinate cutoff tests with physical inventory observation. |
| A client's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditors' primary concern with respect to liabilities resulting from the procurement system? | Accounts payable are not materially understated. |
| The existence of unrecorded accounts payable. | Vouching cash disbursements recorded after year-end. |
| The existence of an unrecorded accrued payable not due for payment for several months. | Reviewing union contracts. |
| The existence of a fictitious account payable in an audit in which accounts payable are not confirmed. | Vouching selected accounts on the year-end trial balance of accounts payable. |
| A purchase was recorded after year-end which should have been recorded prior to year-end and payment of it has not yet occurred. | Reviewing receiving reports issued shortly before and after year-end. |
| The existence of related party payables. | Reviewing unusual transactions during the year. |
| A purchase was recorded before year-end which should have been recorded after year-end and payment of it has not yet occurred. | Reviewing receiving reports issued shortly before and after year-end. |
| A payment was made prior to year-end for goods received but not ordered. | Vouching cash disbursements recorded prior to year-end. |
| After year-end a payment was made for the amount on the purchase order, an amount higher than the billed amount. | Vouching cash disbursements recorded after year-end. |
| Shortly prior to year-end, an employee stole goods received from a vendor before a receiving report had been prepared; payment for the goods was made prior to year-end. | Vouching cash disbursements recorded prior to year-end. |
| Prior to year-end a bookkeeper, ordered goods, but had them delivered to her home. The company paid for these goods after year-end. | Vouching cash disbursements recorded after year-end. |
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