Chapter 08Acquisition and Expenditure Cycle
True / False Questions1.The basic acquisition and expenditure
activities are (1) purchasing goods and services, (2) receiving the
goods or services, (3) recording the asset or expense and related
liability, and (4) paying the vendors.TrueFalse
2.Purchases are ordered by a purchasing department that seeks
the best prices and quality.TrueFalse
3.Checks are signed by the accounts payable department after
assembling the invoice, purchase order, and receiving
report.TrueFalse
4.Purchase orders are "open" from the time they are issued until
the goods are received.TrueFalse
5.Normally, liabilities should be recorded on the date the goods
are received and accepted.TrueFalse
6.Auditors' "search for unrecorded liabilities" should emphasize
the large balances, especially for regular vendors.TrueFalse
7.Auditors can inspect the "unmatched invoice file" and compare
it to the "unmatched receiving report" file to determine whether
liabilities are unrecorded.TrueFalse
8.Proper separation of duties involves authorization of
purchases by persons who do not have custody, recording, or
reconciliation duties.TrueFalse
9.If personnel in the organization are not performing their
control activities very well, auditors will need to design
substantive procedures to try to detect whether control failures
have produced misleading financial statement account
balances.TrueFalse
10.If the risk of material misstatement is assessed as very low,
it is likely that additional substantive procedures will be
required.TrueFalse
11.The emphasis is on the existence assertion because financial
statement users tend to be more concerned about understated
expenses and liabilities than overstated.TrueFalse
12.Evidence is much easier to obtain to verify the completeness
assertion for liabilities than the existence assertion for
assets.TrueFalse
13.The search for unrecorded liabilities should normally be
performed up to the last day of fieldwork in the period following
the audit client's balance sheet date.TrueFalse
14.The principal goal of the physical inspection of property,
plant, and equipment is to determine actual existence and condition
of property.TrueFalse
15.All pay base data (hours, job number, absences, etc.) should
be approved by an employee's immediate supervisor.TrueFalse
16.The main feature of custody in the payroll cycle is the
possession of the payroll checks.TrueFalse
17.Persons in charge of authorization and custody payroll
functions should not prepare the payroll.TrueFalse
18.The payroll bank account cannot be reconciled like the other
bank accounts.TrueFalse
19.Record keeping is performed by payroll and cost accounting
personnel who do not make authorizations or distribute
pay.TrueFalse
Multiple Choice Questions20.When confirming accounts payable,
emphasis should be put on what kind of accounts?
A.Accounts with small or zero balances.
B.All accounts should be equally emphasized.
C.Accounts with large balances.
D.Accounts listed in the accounts payable subsidiary.
21."Recorded vouchers (accounts payable entries) in the voucher
register (e.g., purchases journal) supported by completed voucher
documentation" is a specific example of which management
assertion?
A.Classification.
B.Occurrence.
C.Completeness.
D.Cutoff.
22."All purchase orders are supported by requisitions from
proper persons" is a specific example of which management
assertion?
A.Occurrence.
B.Completeness.
C.Cutoff.
D.Classification.
23.Cash disbursements are authorized by
A.Purchase orders.
B.Invoices.
C.Receiving reports.
D.A complete voucher package.
24.For the copy of the purchase order that goes to the receiving
department, it is best to
A.Leave off the description of the goods ordered.
B.Leave off the quantity of the goods ordered.
C.Leave off the name of the vendor.
D.Have the receiving department forward all copies of the
purchase order to accounts payable.
25.Vouchers should be stamped PAID to
A.Prevent duplicate payment.
B.Generate a new purchase order.
C.Indicate posting in the voucher register.
D.Facilitate preparation of the bank reconciliation.
26.A voucher package is used to
A.Document receipt of inventory.
B.Document completion of services.
C.Document a purchase contract.
D.Provide a source document for recording the purchase of a good
or service.
27.An auditor traced a sample of purchase orders and the related
receiving reports to the purchases journal. The purpose of this
substantive audit procedure most likely was to
A.Identify usually large purchases that should be investigated
further.
B.Verify that cash disbursements were for goods actually
received.
C.Determine that purchases were properly recorded.
D.Test whether payments were for goods actually ordered.
28.The usual source for journal entries posted to the general
ledger to record the purchase of inventory is
A.Sales invoices updated with cost data from the inventory
records department.
B.Purchase invoices updated with cost data from the inventory
records department.
C.Receiving reports updated with cost data from the accounts
payable department.
D.Vouchers payable journal from the accounts payable
department.
29.Which of the following would detect the understatement of a
purchase discount?
A.Verify the arithmetic accuracy of the purchases journal.
B.Compare purchase disbursement records and checks with invoice
terms.
C.Compare approved purchase orders to receiving reports.
D.Verify the receipt of items ordered and invoiced.
30.Which of the following situations indicates a potential
material weakness in internal control over acquisition and
expenditure?
A.Purchase orders are not prepared for services acquired
directly under authorization of department heads.
B.The same person authorizes voucher packages and signs
checks.
C.Unacceptable goods are not scheduled on receiving reports.
D.The same person signs checks and stamps vouchers PAID.
31.Which of the following client control activities is not
usually performed in the vouchers payable (accounts payable)
department?
A.Determining the mathematical accuracy of the vendors'
invoices.
B.Writing checks for the treasurer's signature to take advantage
of purchase discounts.
C.Controlling the mailing of the check and remittance
advice.
D.Checking the prices on the vendor's invoice.
32.When auditing merchandise inventory at year-end, the auditor
performs a purchase cutoff test to obtain evidence that
A.All goods purchased before year-end are received before the
physical inventory count.
B.No goods held on consignment for customers are included in the
inventory balance.
C.No goods observed during the physical count are pledged or
sold.
D.All goods owned at year-end are included in the inventory
balance.
33.Auditors may conclude that depreciation charges are too small
by noting
A.Insured values much larger than book values.
B.Large numbers of fully depreciated assets.
C.Frequent trade-ins of relatively new assets.
D.Large and frequent losses on assets retired.
34.The auditor decided to test accounts payable by sending
open-ended (blank) confirmations to selected vendors. The auditor's
best approach in selecting the vendor accounts to confirm is to
A.Select vendor accounts with large balances.
B.Select vendor accounts at random in order to apply a
statistical sampling procedure.
C.Select vendor accounts based on the number of purchases from
vendors during the year.
D.Select vendor accounts that are past due.
35.What evidence is appropriate to determine whether recorded
purchase transactions are valid and the vendors charged the correct
prices?
A.Purchase requisitions and accounts payable entries.
B.Receiving reports and purchase orders.
C.Purchase requisitions and purchases orders.
D.Purchase orders and bid quotes.
36.Purchase cutoff procedures should be designed to produce
evidence of whether merchandise is included in the inventory of the
client company if the company
A.Has paid for the merchandise.
B.Has physical possession of the merchandise.
C.Holds legal title to the merchandise.
D.Holds the shipping documents for the merchandise issued in the
company's name.
37.Which of the following accounts would most likely be reviewed
by the auditor to gain reasonable assurance that additions to the
equipment account are not understated?
A.Depreciation expense.
B.Gain on disposal of equipment.
C.Accounts payable.
D.Repairs and maintenance expense.
38.Which of the following would not be included in the
supporting documents for a voucher?
A.Purchase order.
B.Vendor invoice.
C.Receiving report.
D.Blank check.
39.A voucher would typically contain
A.A purchase requisition, purchase order, vendor invoice,
receiving report, and check copy.
B.A purchase requisition, purchase order, sales invoice,
receiving report, and check copy.
C.A purchase requisition, sales order, sales invoice, receiving
report, and check copy.
D.A purchase requisition, sales order, vendor invoice, receiving
report, and check copy.
40.When using confirmations to provide evidence about the
completeness assertion for accounts payable, the appropriate
population most likely would be
A.Vendors with whom the entity has previously done business.
B.Amounts recorded in the accounts payable subsidiary
ledger.
C.Payees of checks drawn in the month after the year-end.
D.Invoices filed in the entity's open invoice file.
41.Which of the following procedures would an auditor most
likely perform in searching for unrecorded payables?
A.Reconcile receiving reports with related cash payments made
just prior to year-end.
B.Contrast the ratio of accounts payable to purchases with the
prior year's ratio.
C.Vouch a sample of creditor balances to supporting invoices,
receiving reports, and purchase orders.
D.Compare cash payments occurring after the balance sheet date
with the accounts payable trial balance.
42.An entity's internal control structure requires for every
check request that 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.Purchase orders.
B.Canceled checks.
C.Receiving reports.
D.Approved vouchers.
43.An auditor wishes to perform tests of controls on a client's
purchasing procedures. If the control activities leave no audit
trail of documentary evidence, the auditor most likely will test
the procedures by
A.Confirmation and observation.
B.Observation and inquiry.
C.Analytical procedures and confirmation.
D.Inquiry and analytical procedures.
44.Which of the following audit procedures is best for
identifying unrecorded accounts payable?
A.Reviewing cash disbursements recorded subsequent to the
balance sheet date to determine whether the related payables apply
to the prior period.
B.Investigating payables recorded just prior to and just
subsequent to the balance sheet date to determine whether they are
supported by receiving reports.
C.Examining unusual relationships between monthly accounts
payable balances and recorded cash payments.
D.Reconciling vendors' statements to the file of receiving
reports to identify items received just prior to the balance sheet
date.
45.To provide assurance that each voucher is submitted and paid
only once, an auditor most likely would examine a sample of paid
vouchers and determine whether each voucher is
A.Supported by a vendor's invoice.
B.Stamped "paid" by the check signer.
C.Prenumbered and accounted for.
D.Approved for authorized purchases.
46.Cutoff 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.Valuation or allocation.
B.Existence or occurrence.
C.Completeness.
D.Rights and obligations.
47.When auditing PP&E, the auditor's approach is generally
to
A.Examine evidence supporting the amounts in the ending
balance.
B.Examine evidence supporting additions during the year.
C.Follow a reliance strategy, testing internal controls and
analytical procedures.
D.Concentrate on finding unrecorded assets.
48.Which of the following procedures would an auditor most
likely perform in searching for unrecorded liabilities?
A.Trace a sample of accounts payable entries recorded just
before year-end to the unmatched receiving report file.
B.Compare a sample of purchase orders issued just after year-end
with the year-end accounts payable trial balance.
C.Vouch a sample of cash disbursements recorded just after
year-end to receiving reports and vendor invoices.
D.Scan the cash disbursements entries recorded just before
year-end for indications of unusual transactions.
49.In performing a search for unrecorded retirements of fixed
assets, an auditor most likely would
A.Inspect the property ledger and the insurance and tax records,
and then tour the client's facilities.
B.Tour the client's facilities, and then inspect the property
ledger, and the insurance and tax records.
C.Analyze the repair and maintenance account, and then tour the
client's facilities.
D.Tour the client's facilities, and then analyze the repair and
maintenance account.
50.A weakness in internal control over recording retirements of
equipment may cause an auditor to
A.Inspect certain items of equipment in the plant and trace
those items to the accounting records.
B.Review the subsidiary ledger to ascertain whether depreciation
was taken on each item of equipment during the year.
C.Trace additions to the "other assets" account to search for
equipment that is still on hand but no longer being used.
D.Select certain items of equipment from the accounting records
and locate them in the plant.
51.Failure to record a liability generally results in
A.An understatement of profit.
B.An understatement of current ratio.
C.An overstatement of profit.
D.An overstatement of assets.
52.Improperly capitalizing an expense item results in.
A.Understatement of profit in the current year and overstatement
in future years.
B.Understatement of profit in the current year and in future
years.
C.Overstatement of profit in the current year and understatement
in future years.
D.Overstatement of profit in the current year and in future
years.
53.A liability for a long-term purchase contract should
generally be recognized when
A.The contract is signed.
B.The goods are shipped.
C.The goods are received.
D.The goods are sold to match the cost.
54.Which of the following expense accounts would not normally be
tested by listing all debits and examining any significant
items?
A.Legal expense.
B.Miscellaneous expense.
C.Repairs and Maintenance.
D.Payroll expense.
55.Which of the following would be an indicator of potential
fraud?
A.Photocopies of invoices in the voucher file.
B.Vendor invoices in numerical order.
C.Vendors with only post office box addresses.
D.All of the above indicate potential fraud.
56.Which of the following fraud detection steps could not be
performed by CAATs?
A.Look for photocopies in invoice files.
B.Look for vendor invoices in numerical order.
C.Look for vendor invoices slightly below the approval
threshold.
D.Look for duplicate vendor numbers.
57.Tracing a sample of time clock cards to payroll registers
(journals) is a procedure designed to obtain evidence about the
transaction assertion(s) of
A.Occurrence only.
B.Occurrence and accuracy only.
C.Completeness only.
D.Accuracy only.
58.The permanent reference files (master files) in a personnel
and payroll database ordinarily do not include which of the
following?
A.Deduction table.
B.Payroll master.
C.Compensation table.
D.Employee earning record.
59.Which of the following situations represents an internal
control weakness in the payroll department?
A.Payroll department personnel are rotated in their duties.
B.Paychecks are distributed by the employees' immediate
supervisor.
C.Payroll records are reconciled with quarterly tax reports.
D.The timekeeping function is independent of the payroll
department.
60.Which of the following personnel department procedures
reduces the risk of payroll fraud and represents an appropriate
responsibility for the department?
A.Distributing paychecks.
B.Authorizing overtime hours.
C.Authorizing the addition or deletion of employees from the
payroll.
D.Collecting and retaining unclaimed paychecks.
61.To test the transaction assertion of occurrence in the area
of payroll, the auditor most likely would
A.Select a sample of personnel files and trace the pay rate to
union contracts or other rate rights and obligations.
B.Select a sample of personnel files and trace the pay rate to
payroll department files used in payroll preparation.
C.Select a sample of payroll register entries and recalculate
gross pay, deductions, and net pay.
D.Select a sample of payroll register entries and vouch hours
worked to clock time cards.
62.Small Corporation uses a Wages Clearing Account for its
payroll disbursements. At the end of February, a reasonably large
debit balance remained in this account. The most likely reason for
this is that
A.More labor cost had been assigned to the expense accounts than
had been paid.
B.Some labor cost had not been properly classified in the
expense accounts.
C.Some employees had not yet cashed their checks.
D.Not enough cash had been transferred to the bank account.
63.Which of the following is not a major control risk in the
payroll cycle?
A.Paying fictitious "employees."
B.Overpaying for time or production.
C.Losing employees to competitors.
D.Incorrect accounting for costs or expenses.
64.The sampling unit in a test of controls pertaining to the
existence or occurrence of payroll transactions ordinarily is
a(an)
A.Clock card or time ticket.
B.Employee Form W-2.
C.Employee personnel record.
D.Payroll register (journal) entry.
65.The purpose of segregating the duties of hiring personnel and
distributing payroll checks is to separate the
A.Human resources function from the controllership function.
B.Administrative controls from the internal accounting
controls.
C.Authorization of transactions from the custody of related
assets.
D.Operational responsibility from the record keeping
responsibility.
66.An auditor most likely would assess control risk at the
maximum if the payroll department supervisor is responsible for
A.Examining authorization forms for new employees.
B.Comparing payroll registers with original batch transmittal
data.
C.Distribute payroll checks to all employees.
D.Hiring all subordinate payroll department employees.
67.An auditor most likely would extend substantive tests of
payroll when
A.Payroll is extensively audited by the state government.
B.Payroll expense is substantially higher than in the prior
year.
C.Overpayments are discovered in performing tests of
controls.
D.Employees complain to management about too much overtime.
68.An auditor most likely would perform substantive procedures
on payroll transactions and balances when
A.Cutoff tests indicate a substantial amount of accrued payroll
expense.
B.The assessed level of control risk relative to payroll
transactions is low.
C.Analytical procedures indicate unusual fluctuations in
recurring payroll entries.
D.Accrued payroll expense consists primarily of unpaid
commissions.
69.An auditor vouched data for a sample of employees in a
payroll register to approved clock card data to provide assurance
that
A.Payments to employees are computed at authorized rates.
B.Employees work the number of hours for which they are
paid.
C.Separation of duties exists between the preparation and
distribution of the payroll.
D.Internal controls relating to unclaimed payroll checks are
operating effectively.
70.Substantive tests of account balances in the payroll cycle
are likely to include the following procedures except
A.Analytical review procedures.
B.Recalculation of accruals.
C.Comparison of accruals to subsequent payments.
D.Detail vouching of payroll expense entries.
71.Which of the following accounts does not appear in the
acquisition and expenditure cycle?
A.Cash.
B.Purchases Returns.
C.Sales Returns.
D.Prepaid Insurance.
72.For which of the following accounts would the matching
concept be the most appropriate?
A.Cost of Goods Sold.
B.Research and Development.
C.Depreciation Expense.
D.Sales.
73.Which of the following would not overstate current-period net
income?
A.Capitalizing an expenditure that should be expensed.
B.Failing to record a liability for an expenditure.
C.Failing to record a check paying an item in vouchers
payable.
D.All of the above would overstate net income.
74.A client's purchasing system ends with the recording of a
liability and its eventual payment. Which of the following best
describes auditors' primary concern with respect to liabilities
resulting from the purchasing system?
A.Accounts payable are not materially understated.
B.Authority to incur liabilities is restricted to one designated
person.
C.Acquisition of materials is not made from one vendor or one
group of vendors.
D.Commitments for all purchases are made only after established
competitive bidding procedures are followed.
75.Which of the following is an internal control activity that
could prevent a paid disbursement voucher from being presented for
payment a second time?
A.Vouchers should be prepared by individuals who are responsible
for signing disbursement checks.
B.Disbursement vouchers should be approved by at least two
responsible management officials.
C.The date on a disbursement voucher should be within a few days
of the date the voucher is presented for payment.
D.The official who signs the check should compare the check with
the voucher and should stamp PAID on the voucher documents.
76.R. Budd, the purchasing agent of Lake Hardware Wholesalers,
has a relative who owns a retail hardware store. Budd arranged for
hardware to be delivered by manufacturers to the retail store on a
cash-on-delivery (COD) basis, thereby enabling his relative to buy
at Lake's wholesale prices. Budd was probably able to accomplish
this because of Lake's poor internal control over
A.Purchase requisitions.
B.Cash receipts.
C.Perpetual inventory records.
D.Purchase orders.
77.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 are on a subsidiary trial balance of accounts payable.
B.Examine a sample of cash disbursements in the period
subsequent to year-end.
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 unusual relationships between monthly accounts payable
and recorded purchases.
78.Which of the following procedures is least likely to be
performed before the balance-sheet date?
A.Observation of inventory.
B.Review of internal control over cash disbursements.
C.Search for unrecorded liabilities.
D.Confirmation of receivables.
79.To determine whether accounts payable are complete, auditors
perform a test to verify that all merchandise received has been
recorded. The population for this test consists of all
A.Vendors' invoices.
B.Purchase orders.
C.Receiving reports.
D.Canceled checks.
80.When verifying debits to the perpetual inventory records of a
nonmanufacturing company, auditors would be most interested in
examining a sample of purchase
A.Approvals.
B.Requisitions.
C.Invoices.
D.Orders.
81.A furniture company ordered 84 tables from a supplier. The
supplier accidentally sent only 48 tables, but the receiving
department at the furniture company accepted the tables. The
invoice was eventually received but was for the 84 tables ordered.
The furniture company paid the entire amount. Which of the
following controls would have been least likely to have prevented
this erroneous payment?
A.The copy of the purchase order sent to the furniture company's
receiving department should not have shown an expected
quantity.
B.Personnel in the furniture company's accounts payable
department should compare the receiving report to the purchase
invoice before creation of the voucher.
C.Personnel in the furniture company's cash disbursements
department should compare the check that is prepared to all of the
backup documentation.
D.Personnel in the furniture company's purchasing department
should compare the purchase requisition to the purchase order.
82.L. Curtis, a maintenance supervisor, submitted maintenance
invoices from a phony repair company and received the checks at a
post office box. This should have been prevented by
A.Comparison of the company name to the approved vendor list by
the check signer.
B.Recognition of the excess maintenance costs by Curtis's
supervisor.
C.Refusal by the purchasing department to approve the
vendor.
D.All of the above.
83.An audit team would most likely examine the detail support
for which of the following charges?
A.Payroll expense.
B.Cost of goods sold.
C.Supplies expense.
D.Legal expense.
84.Which of the following accounts would most likely be audited
in connection with a related balance sheet account?
A.Property Tax Expense.
B.Payroll Expense.
C.Research and Development.
D.Legal Expense.
85.When auditing liabilities account balances, auditors are most
concerned with management' assertion about
A.Existence.
B.Rights and obligations.
C.Completeness.
D.Valuation and allocation.
86.In a test of controls, auditors may trace receiving reports
to vouchers recorded in the voucher register. This is a test
for
A.Occurrence.
B.Completeness.
C.Classification.
D.Cutoff.
87.An audit team most likely would assess control risk at the
maximum if the payroll department supervisor is responsible for
A.Examining authorization forms for new employees.
B.Comparing payroll registers with original batch transmittal
data.
C.Authorizing payroll rate changes for all employees.
D.Hiring all subordinate payroll department employees.
88.Which of the following departments most likely would approve
changes in pay rates and deductions from employee salaries?
A.Personnel.
B.Treasurer.
C.Controller.
D.Payroll.
89.Matthew Corp. has changed from a system of recording time
worked on clock cards to a computerized payroll system in which
employees record time in and out with magnetic cards. The
computerized system automatically updates all payroll records.
Because of this change,
A.A generalized computer audit plan must be used.
B.Part of the audit trail is altered.
C.The potential for payroll-related fraud is diminished.
D.Transactions must be processed in batches.
90.Effective control over the cash payroll function would
mandate which of the following?
A.The payroll clerk should fill the envelopes with cash and
include a computation of the net wages.
B.The paymaster should be retain unclaimed payroll
envelopes.
C.Each employee should be asked to sign a receipt for wages
received.
D.A separate checking account for payroll should be
maintained.
91.A large retail enterprise has established a policy that
requires the paymaster to deliver all unclaimed payroll checks to
the internal audit department at the end of each payroll
distribution day. This policy was most likely adopted to
A.Ensure that employees who were absent on a payroll
distribution day are not paid for that day.
B.Prevent the paymaster from cashing checks that are unclaimed
for several weeks.
C.Prevent a bona fide employee's check from being claimed by
another employee.
D.Detect any fictitious employee who may have been placed on the
payroll.
92.Auditors ordinarily ascertain whether payroll checks are
properly endorsed during the audit of
A.Clock cards.
B.The voucher system.
C.Cash in bank.
D.Accrued payroll.
93.In determining the effectiveness of an entity's policies and
procedures relating to the occurrence assertion for payroll
transactions, auditors most likely would inquire about and
A.Observe the separation of duties concerning personnel
responsibilities and payroll disbursement.
B.Inspect evidence of accounting for prenumbered payroll
checks.
C.Recompute the payroll deductions for employee fringe
benefits.
D.Verify the preparation of the monthly payroll account bank
reconciliation.
94.Which of the following activities most likely would be
considered a weakness in an entity's internal control over
payroll?
A.A voucher for the amount of the payroll is prepared in the
general accounting department based on the payroll department's
payroll summary.
B.Payroll checks are prepared by the accounts payable department
and signed by the treasurer.
C.The employee who distributes payroll checks returns unclaimed
payroll checks to the payroll department.
D.The personnel department sends employees' termination notices
to the payroll department.
95.The transactions typically classified in the acquisition and
expenditure cycle flow do not include
A.Requesting goods, services, or assets.
B.Placing the sales order.
C.Receiving, inspecting, and accepting the assets.
D.Accounting for accounts payable.
96.The review phase of the transaction flow in the acquisition
and expenditure cycle does not include
A.Interviews.
B.Observations.
C.Collecting sample documents.
D.Substantive procedures.
97.The internal control questionnaire for receipt of purchases
completeness objective would not include which of the following
questions?
A.Are the purchase order forms prenumbered and the numerical
sequence checked for missing documents?
B.Are receiving report forms prenumbered and the numerical
sequence checked for missing documents?
C.Are competitive bids received and reviewed for certain
items?
D.Is the accounts payable department notified of goods returned
to vendors?
98.A voucher typically does not have attached to it a copy of
which of the following documents?
A.Requisition.
B.Purchase order.
C.Vendor's invoice.
D.Check register.
99.Computer controls that might be found in an advanced on-line
acquisition and expenditure system would not include
A.All vendor invoices are prenumbered and the numbers accounted
for.
B.Each terminal performs only designated functions.
C.An identification number and password are required to enter
the nonautomatic purchase orders.
D.The check signature is printed using a signature plate that is
installed on the computer printer only when checks are printed.
100.Specific balance assertions typical of accounts payable
would not include
A.Recorded liabilities are obligations of the entity.
B.Estimated liabilities are properly valued.
C.Accounts payable are not pledged as collateral.
D.Payables are recorded in the proper period.
101.The inherent risk that accounts payable may be omitted or
otherwise understated typically is
A.Low.
B.High.
C.Moderate.
D.Indeterminate.
102.An audit plan for accounts payable would not include which
of the following procedures?
A.Obtaining a trial balance of recorded accounts payable.
B.Sending confirmation to accounts with zero balances.
C.Reviewing cash receipts for the period after year-end.
D.Obtaining written client representations about related-party
payables and pledges of assets as collateral for liabilities.
103.Which of the following would not typically be a specific
relevant assertion about fixed asset accounts?
A.Fixed assets in the accounts exist and are in productive
use.
B.Net carrying book values in the accounts are reflected at
current market values.
C.Depreciation has been calculated properly using accepted
methods and reasonable estimates of useful life and other
factors.
D.Fixed assets are properly classified in the balance sheet
under appropriate descriptive captions.
104.The typical functions of the personnel and payroll cycle
would not include
A.Labor relations.
B.Report of attendance and work performed.
C.Allocation to cost of goods sold.
D.Payroll accounting.
105.An internal control questionnaire for payroll processing
occurrence assertion would not include which of the following
questions?
A.Are names of terminated employees reported in writing to the
payroll department?
B.Is the payroll compared to personnel files periodically?
C.Are checks distributed by the employee's immediate
supervisor?
D.Are all wage rates determined by contract or approved by a
personnel officer?
106.Which of the following functional responsibilities would not
typically relate to salaried employees?
A.Collecting timekeeping data.
B.Supervision.
C.Personnel or labor relations.
D.Payroll distribution.
Fill in the Blank Questions107.The
_____________________________________ inspects the goods received
for _____________________________ and _____________________________
and then puts them in the hands of other responsible
persons.________________________________________
108.When the _________________________________,
______________________________ and _________________________ are in
hand, the accountants can record the accounts
payable.________________________________________
109.Auditors can compare the ________________________________
file to the _________________________________ to determine whether
the company has material unrecorded liabilities on the financial
statement date.________________________________________
110.___________________________________ and
___________________________________ can cause "unmatched" invoices
and related "unmatched" receiving reports to be
unnoticed.________________________________________
111.A _____________________________ is a cover sheet containing
all supporting documentation for an
acquisition.________________________________________
112.A list of all purchases might exist only in a
____________________________________ file rather than a
_____________________________________.________________________________________
113.Assessment of _____________________________ of
__________________________________ is important because it governs
the nature, timing, and extent of substantive procedures that will
be applied in the audit of account balances in the acquisition
cycle.________________________________________
114.Vendor invoices should be compared to
_______________________________ and
________________________________ to determine that the vendor is
charging the approved price and for quantity
received.________________________________________
115.____________________________________ consist of (1)
identification of data population for audit and (2) an expression
of the action to be taken to produce relevant audit
evidence.________________________________________
116.When considering assertions and obtaining evidence about
accounts payable, auditors must put emphasis on the
_____________________________
assertion.________________________________________
117.The ________________________________________ is a set of
procedures designed to yield audit evidence of liabilities that
were not recorded in the reporting
period.________________________________________
118.The five functional responsibilities of a payroll cycle are
____________________________, ____________________________,
____________________________, and
________________________________.________________________________________
119.The __________________________________ has transaction
initiation authority to add new employees and delete terminated
employees.________________________________________
120.A personnel file should establish the reality of a person's
_______________________ and
____________________________.________________________________________
121.The ____________________________________ is the primary
original record for payroll
accounting.________________________________________
Short Answer Questions122.The internal control questionnaire for
purchases and accounts payable includes the following questions.
Next to each of the questions, indicate the letter of the related
transaction assertion.
A. OccurrenceB. CompletenessC. AccuracyD. ClassificationE.
Cutoff
Essay Questions123.Explain why auditors must put more emphasis
on the completeness and obligation assertion when auditing payables
and contrast this with the audit of asset accounts.
124.F. Jack, CPA, is the auditor of Jill Corporation. Jack plans
to follow last year's work papers in selecting accounts payable to
be confirmed. Confirmations were mailed to 50 of Jill's 200
suppliers. The sample was designed to select accounts with the
largest balances. Jack and Jill spent a lot of time reconciling
minor differences between the confirmation amounts and the accounts
payable trial balance.
Required:
Do you believe Jack should use the same sample design for
accounts payable confirmations this year? If not, what suggestions
can you give to improve the design?
125.After checks are signed for vendor invoices, why should
vouchers be marked PAID or otherwise mutilated?
126.This question requires knowledge of specific account balance
assertions, general audit procedures, and trade accounts
payable.
You are assigned to audit the accounts payable of Green
Corporation whose business is wholesale and retail trade. The
company purchases products from 1,002,000 manufacturers ("vendors")
and sells the products to its retail and wholesale customers. The
general ledger shows the Accounts Payable control balance as of the
balance-sheet date in the amount of $42 million (which is 70
percent of current liabilities, 50 percent of total liabilities,
and 35 percent of total liabilities and owners' equity). Green's
management accountants post the summary entries from the purchases
journal and from the cash disbursements journal each month to the
Accounts Payable control account. The accounts payable manager gave
you a detailed trial balance that lists all recorded unpaid
invoices (recording date, vendor name, vendor invoice number,
invoice date, and amount) subtotaled by vendor.
Other members of the audit team have already decided to assess
control risk at the maximum for the accounts payable work. The
engagement manager gave you last year's audit working papers but
said the audit plan was missing (!). Thus, the first part of your
assignment is to write the audit plan for audit of the Green
Corporation trade accounts payable.
Required:
For each of the balance assertions (existence, completeness, and
valuation or and allocation), write two or more specific audit
procedures designed to produce evidence related to the accounts
payable balance of $42 million.
(Hints: [1] For each of the three balance assertions, think
about a specific assertion before you write a procedure to gather
evidence. [2] Write specific procedures as adaptations of the
general audit procedures: recalculation, observation, confirmation,
document examination, inquiry, scanning, analytical procedures. [3]
Most procedures are two-part statements: "Select a sample of...
[identify the population]...and "do something"... [specify an
action].)
127.When performing procedures in a search of unrecorded
liabilities, auditors can utilize various sources of
evidence/information (e.g., documents, files, management and
clerical personnel).
Required:
List at least five, but not more than seven, sources of
evidence/information for the search for unrecorded liabilities.(Do
not write procedures. Do not take time to write about particular
evidence that can be obtained or reasons for using the
sources.)
128.The test of controls for purchases, cash disbursements, and
accounts payable include the following audit procedures. Next to
each of the procedures, indicate the related transaction
assertion.
129.The test of controls for payroll includes the following
audit procedures. Next to each of the procedures, indicate the
related management assertion about transactions.
Chapter 08 Acquisition and Expenditure Cycle Answer Key
True / False Questions1.The basic acquisition and expenditure
activities are (1) purchasing goods and services, (2) receiving the
goods or services, (3) recording the asset or expense and related
liability, and (4) paying the vendors.TRUEReference: Question also
found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-02 Describe the acquisition and expenditure cycle; including
typical source documents and controls.Topic: Acquisition and
Expenditure Cycle: Typical Activities
2.Purchases are ordered by a purchasing department that seeks
the best prices and quality.TRUEReference: Question also found in
study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-02 Describe the acquisition and expenditure cycle; including
typical source documents and controls.Topic: Acquisition and
Expenditure Cycle: Typical Activities
3.Checks are signed by the accounts payable department after
assembling the invoice, purchase order, and receiving
report.FALSEReference: Question also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-02 Describe the acquisition and expenditure cycle; including
typical source documents and controls.Topic: Acquisition and
Expenditure Cycle: Typical Activities
4.Purchase orders are "open" from the time they are issued until
the goods are received.TRUEReference: Question also found in study
guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-02 Describe the acquisition and expenditure cycle; including
typical source documents and controls.Topic: Acquisition and
Expenditure Cycle: Typical Activities
5.Normally, liabilities should be recorded on the date the goods
are received and accepted.TRUEReference: Question also found in
study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-02 Describe the acquisition and expenditure cycle; including
typical source documents and controls.Topic: Acquisition and
Expenditure Cycle: Typical Activities
6.Auditors' "search for unrecorded liabilities" should emphasize
the large balances, especially for regular vendors.FALSEReference:
Question also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-04 Explain the importance of the completeness assertion for the
audit of accounts payable and list some procedures for a search for
unrecorded liabilities.Topic: Substantive Procedures in the
Acquisition and Expenditure Cycle
7.Auditors can inspect the "unmatched invoice file" and compare
it to the "unmatched receiving report" file to determine whether
liabilities are unrecorded.FALSEReference: Question also found in
study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-02 Describe the acquisition and expenditure cycle; including
typical source documents and controls.Topic: Acquisition and
Expenditure Cycle: Typical Activities
8.Proper separation of duties involves authorization of
purchases by persons who do not have custody, recording, or
reconciliation duties.TRUEReference: Question also found in study
guide
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN:
Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning
Objective: 08-03 Give examples of tests of controls over purchases
of inventory and services.Topic: Control Risk Assessment
9.If personnel in the organization are not performing their
control activities very well, auditors will need to design
substantive procedures to try to detect whether control failures
have produced misleading financial statement account
balances.TRUEReference: Question also found in study guide
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN:
Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning
Objective: 08-03 Give examples of tests of controls over purchases
of inventory and services.Topic: Control Risk Assessment
10.If the risk of material misstatement is assessed as very low,
it is likely that additional substantive procedures will be
required.FALSEReference: Question also found in study guide
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN:
Risk AnalysisBlooms: UnderstandDifficulty: 2 MediumLearning
Objective: 08-03 Give examples of tests of controls over purchases
of inventory and services.Topic: Control Risk Assessment
11.The emphasis is on the existence assertion because financial
statement users tend to be more concerned about understated
expenses and liabilities than overstated.FALSEReference: Question
also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-04 Explain the importance of the completeness assertion for the
audit of accounts payable and list some procedures for a search for
unrecorded liabilities.Topic: Substantive Procedures in the
Acquisition and Expenditure Cycle
12.Evidence is much easier to obtain to verify the completeness
assertion for liabilities than the existence assertion for
assets.FALSEReference: Question also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-04 Explain the importance of the completeness assertion for the
audit of accounts payable and list some procedures for a search for
unrecorded liabilities.Topic: Substantive Procedures in the
Acquisition and Expenditure Cycle
13.The search for unrecorded liabilities should normally be
performed up to the last day of fieldwork in the period following
the audit client's balance sheet date.TRUEReference: Question also
found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-04 Explain the importance of the completeness assertion for the
audit of accounts payable and list some procedures for a search for
unrecorded liabilities.Topic: Substantive Procedures in the
Acquisition and Expenditure Cycle
14.The principal goal of the physical inspection of property,
plant, and equipment is to determine actual existence and condition
of property.TRUEReference: Question also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-05 Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Topic: Substantive Procedures in
the Acquisition and Expenditure Cycle
15.All pay base data (hours, job number, absences, etc.) should
be approved by an employee's immediate supervisor.TRUEReference:
Question also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-08 Describe the payroll cycle; including typical source
documents and controls. [Appendix 8C]Topic: Audit Issues in the
Expense and Acquisition Cycle
16.The main feature of custody in the payroll cycle is the
possession of the payroll checks.TRUEReference: Question also found
in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-08 Describe the payroll cycle; including typical source
documents and controls. [Appendix 8C]Topic: Audit Issues in the
Expense and Acquisition Cycle
17.Persons in charge of authorization and custody payroll
functions should not prepare the payroll.TRUEReference: Question
also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-08 Describe the payroll cycle; including typical source
documents and controls. [Appendix 8C]Topic: Audit Issues in the
Expense and Acquisition Cycle
18.The payroll bank account cannot be reconciled like the other
bank accounts.FALSEReference: Question also found in study
guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-08 Describe the payroll cycle; including typical source
documents and controls. [Appendix 8C]Topic: Audit Issues in the
Expense and Acquisition Cycle
19.Record keeping is performed by payroll and cost accounting
personnel who do not make authorizations or distribute
pay.TRUEReference: Question also found in study guide
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingBlooms: UnderstandDifficulty: 2 MediumLearning Objective:
08-08 Describe the payroll cycle; including typical source
documents and controls. [Appendix 8C]Topic: Audit Issues in the
Expense and Acquisition Cycle
Multiple Choice Questions20.When confirming accounts payable,
emphasis should be put on what kind of accounts?
A.Accounts with small or zero balances.
B.All accounts should be equally emphasized.
C.Accounts with large balances.
D.Accounts listed in the accounts payable subsidiary.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: OriginalTopic: Expenditure
Assertions
21."Recorded vouchers (accounts payable entries) in the voucher
register (e.g., purchases journal) supported by completed voucher
documentation" is a specific example of which management
assertion?
A.Classification.
B.Occurrence.
C.Completeness.
D.Cutoff.
AACSB: AnalyticAICPA BB: LegalAICPA FN: Risk AnalysisBlooms:
ApplyDifficulty: 2 MediumLearning Objective: 08-03 Give examples of
tests of controls over purchases of inventory and services.Source:
OriginalTopic: Expenditure Controls
22."All purchase orders are supported by requisitions from
proper persons" is a specific example of which management
assertion?
A.Occurrence.
B.Completeness.
C.Cutoff.
D.Classification.
AACSB: AnalyticAICPA BB: LegalAICPA FN: Risk AnalysisBlooms:
ApplyDifficulty: 2 MediumLearning Objective: 08-02 Describe the
acquisition and expenditure cycle; including typical source
documents and controls.Source: OriginalTopic: Expenditure Cycle
23.Cash disbursements are authorized by
A.Purchase orders.
B.Invoices.
C.Receiving reports.
D.A complete voucher package.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
RememberDifficulty: 2 MediumLearning Objective: 08-03 Give examples
of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
24.For the copy of the purchase order that goes to the receiving
department, it is best to
A.Leave off the description of the goods ordered.
B.Leave off the quantity of the goods ordered.
C.Leave off the name of the vendor.
D.Have the receiving department forward all copies of the
purchase order to accounts payable.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
25.Vouchers should be stamped PAID to
A.Prevent duplicate payment.
B.Generate a new purchase order.
C.Indicate posting in the voucher register.
D.Facilitate preparation of the bank reconciliation.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
26.A voucher package is used to
A.Document receipt of inventory.
B.Document completion of services.
C.Document a purchase contract.
D.Provide a source document for recording the purchase of a good
or service.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
UnderstandDifficulty: 2 MediumLearning Objective: 08-02 Describe
the acquisition and expenditure cycle; including typical source
documents and controls.Source: OriginalTopic: Expenditure Cycle
27.An auditor traced a sample of purchase orders and the related
receiving reports to the purchases journal. The purpose of this
substantive audit procedure most likely was to
A.Identify usually large purchases that should be investigated
further.
B.Verify that cash disbursements were for goods actually
received.
C.Determine that purchases were properly recorded.
D.Test whether payments were for goods actually ordered.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: AICPATopic: Expenditure Controls
28.The usual source for journal entries posted to the general
ledger to record the purchase of inventory is
A.Sales invoices updated with cost data from the inventory
records department.
B.Purchase invoices updated with cost data from the inventory
records department.
C.Receiving reports updated with cost data from the accounts
payable department.
D.Vouchers payable journal from the accounts payable
department.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
UnderstandDifficulty: 2 MediumLearning Objective: 08-03 Give
examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
29.Which of the following would detect the understatement of a
purchase discount?
A.Verify the arithmetic accuracy of the purchases journal.
B.Compare purchase disbursement records and checks with invoice
terms.
C.Compare approved purchase orders to receiving reports.
D.Verify the receipt of items ordered and invoiced.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-05
Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Source: OriginalTopic:
Expenditure Substantive Testing
30.Which of the following situations indicates a potential
material weakness in internal control over acquisition and
expenditure?
A.Purchase orders are not prepared for services acquired
directly under authorization of department heads.
B.The same person authorizes voucher packages and signs
checks.
C.Unacceptable goods are not scheduled on receiving reports.
D.The same person signs checks and stamps vouchers PAID.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
31.Which of the following client control activities is not
usually performed in the vouchers payable (accounts payable)
department?
A.Determining the mathematical accuracy of the vendors'
invoices.
B.Writing checks for the treasurer's signature to take advantage
of purchase discounts.
C.Controlling the mailing of the check and remittance
advice.
D.Checking the prices on the vendor's invoice.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-02
Describe the acquisition and expenditure cycle; including typical
source documents and controls.Source: OriginalTopic: Expenditure
Cycle
32.When auditing merchandise inventory at year-end, the auditor
performs a purchase cutoff test to obtain evidence that
A.All goods purchased before year-end are received before the
physical inventory count.
B.No goods held on consignment for customers are included in the
inventory balance.
C.No goods observed during the physical count are pledged or
sold.
D.All goods owned at year-end are included in the inventory
balance.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
33.Auditors may conclude that depreciation charges are too small
by noting
A.Insured values much larger than book values.
B.Large numbers of fully depreciated assets.
C.Frequent trade-ins of relatively new assets.
D.Large and frequent losses on assets retired.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-07
Describe some common errors and frauds in the acquisition and
expenditure cycle and design some audit and investigation
procedures for detecting them.Source: OriginalTopic: Expenditure
Error and Fraud Detection
34.The auditor decided to test accounts payable by sending
open-ended (blank) confirmations to selected vendors. The auditor's
best approach in selecting the vendor accounts to confirm is to
A.Select vendor accounts with large balances.
B.Select vendor accounts at random in order to apply a
statistical sampling procedure.
C.Select vendor accounts based on the number of purchases from
vendors during the year.
D.Select vendor accounts that are past due.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
35.What evidence is appropriate to determine whether recorded
purchase transactions are valid and the vendors charged the correct
prices?
A.Purchase requisitions and accounts payable entries.
B.Receiving reports and purchase orders.
C.Purchase requisitions and purchases orders.
D.Purchase orders and bid quotes.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-02
Describe the acquisition and expenditure cycle; including typical
source documents and controls.Source: OriginalTopic: Expenditure
Cycle
36.Purchase cutoff procedures should be designed to produce
evidence of whether merchandise is included in the inventory of the
client company if the company
A.Has paid for the merchandise.
B.Has physical possession of the merchandise.
C.Holds legal title to the merchandise.
D.Holds the shipping documents for the merchandise issued in the
company's name.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: OriginalTopic: Expenditure
Substantive Testing
37.Which of the following accounts would most likely be reviewed
by the auditor to gain reasonable assurance that additions to the
equipment account are not understated?
A.Depreciation expense.
B.Gain on disposal of equipment.
C.Accounts payable.
D.Repairs and maintenance expense.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-05
Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Source: OriginalTopic:
Expenditure Audit Procedures
38.Which of the following would not be included in the
supporting documents for a voucher?
A.Purchase order.
B.Vendor invoice.
C.Receiving report.
D.Blank check.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
RememberDifficulty: 1 EasyLearning Objective: 08-02 Describe the
acquisition and expenditure cycle; including typical source
documents and controls.Source: OriginalTopic: Expenditure Cycle
39.A voucher would typically contain
A.A purchase requisition, purchase order, vendor invoice,
receiving report, and check copy.
B.A purchase requisition, purchase order, sales invoice,
receiving report, and check copy.
C.A purchase requisition, sales order, sales invoice, receiving
report, and check copy.
D.A purchase requisition, sales order, vendor invoice, receiving
report, and check copy.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
RememberDifficulty: 1 EasyLearning Objective: 08-02 Describe the
acquisition and expenditure cycle; including typical source
documents and controls.Source: OriginalTopic: Expenditure Cycle
40.When using confirmations to provide evidence about the
completeness assertion for accounts payable, the appropriate
population most likely would be
A.Vendors with whom the entity has previously done business.
B.Amounts recorded in the accounts payable subsidiary
ledger.
C.Payees of checks drawn in the month after the year-end.
D.Invoices filed in the entity's open invoice file.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: AICPATopic: Expenditure Substantive
Testing
41.Which of the following procedures would an auditor most
likely perform in searching for unrecorded payables?
A.Reconcile receiving reports with related cash payments made
just prior to year-end.
B.Contrast the ratio of accounts payable to purchases with the
prior year's ratio.
C.Vouch a sample of creditor balances to supporting invoices,
receiving reports, and purchase orders.
D.Compare cash payments occurring after the balance sheet date
with the accounts payable trial balance.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: AICPATopic: Expenditure Substantive
Testing
42.An entity's internal control structure requires for every
check request that 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.Purchase orders.
B.Canceled checks.
C.Receiving reports.
D.Approved vouchers.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: AICPATopic: Expenditure Controls
43.An auditor wishes to perform tests of controls on a client's
purchasing procedures. If the control activities leave no audit
trail of documentary evidence, the auditor most likely will test
the procedures by
A.Confirmation and observation.
B.Observation and inquiry.
C.Analytical procedures and confirmation.
D.Inquiry and analytical procedures.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: AICPATopic: Expenditure Controls
44.Which of the following audit procedures is best for
identifying unrecorded accounts payable?
A.Reviewing cash disbursements recorded subsequent to the
balance sheet date to determine whether the related payables apply
to the prior period.
B.Investigating payables recorded just prior to and just
subsequent to the balance sheet date to determine whether they are
supported by receiving reports.
C.Examining unusual relationships between monthly accounts
payable balances and recorded cash payments.
D.Reconciling vendors' statements to the file of receiving
reports to identify items received just prior to the balance sheet
date.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: AICPATopic: Expenditure Substantive
Testing
45.To provide assurance that each voucher is submitted and paid
only once, an auditor most likely would examine a sample of paid
vouchers and determine whether each voucher is
A.Supported by a vendor's invoice.
B.Stamped "paid" by the check signer.
C.Prenumbered and accounted for.
D.Approved for authorized purchases.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: AICPATopic: Expenditure Controls
46.Cutoff 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.Valuation or allocation.
B.Existence or occurrence.
C.Completeness.
D.Rights and obligations.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: AICPATopic: Expenditure Substantive
Testing
47.When auditing PP&E, the auditor's approach is generally
to
A.Examine evidence supporting the amounts in the ending
balance.
B.Examine evidence supporting additions during the year.
C.Follow a reliance strategy, testing internal controls and
analytical procedures.
D.Concentrate on finding unrecorded assets.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-05
Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Source: OriginalTopic:
Expenditure fraud
48.Which of the following procedures would an auditor most
likely perform in searching for unrecorded liabilities?
A.Trace a sample of accounts payable entries recorded just
before year-end to the unmatched receiving report file.
B.Compare a sample of purchase orders issued just after year-end
with the year-end accounts payable trial balance.
C.Vouch a sample of cash disbursements recorded just after
year-end to receiving reports and vendor invoices.
D.Scan the cash disbursements entries recorded just before
year-end for indications of unusual transactions.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: AICPATopic: Expenditure Substantive
Testing
49.In performing a search for unrecorded retirements of fixed
assets, an auditor most likely would
A.Inspect the property ledger and the insurance and tax records,
and then tour the client's facilities.
B.Tour the client's facilities, and then inspect the property
ledger, and the insurance and tax records.
C.Analyze the repair and maintenance account, and then tour the
client's facilities.
D.Tour the client's facilities, and then analyze the repair and
maintenance account.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-05
Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Source: AICPATopic: Expenditure
fraud
50.A weakness in internal control over recording retirements of
equipment may cause an auditor to
A.Inspect certain items of equipment in the plant and trace
those items to the accounting records.
B.Review the subsidiary ledger to ascertain whether depreciation
was taken on each item of equipment during the year.
C.Trace additions to the "other assets" account to search for
equipment that is still on hand but no longer being used.
D.Select certain items of equipment from the accounting records
and locate them in the plant.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-05
Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Source: AICPATopic: Expenditure
fraud
51.Failure to record a liability generally results in
A.An understatement of profit.
B.An understatement of current ratio.
C.An overstatement of profit.
D.An overstatement of assets.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-01
Identify significant inherent risks in the acquisition and
expenditure cycle.Source: OriginalTopic: Expenditure risks
52.Improperly capitalizing an expense item results in.
A.Understatement of profit in the current year and overstatement
in future years.
B.Understatement of profit in the current year and in future
years.
C.Overstatement of profit in the current year and understatement
in future years.
D.Overstatement of profit in the current year and in future
years.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-02
Describe the acquisition and expenditure cycle; including typical
source documents and controls.Source: OriginalTopic: Expenditure
risks
53.A liability for a long-term purchase contract should
generally be recognized when
A.The contract is signed.
B.The goods are shipped.
C.The goods are received.
D.The goods are sold to match the cost.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
UnderstandDifficulty: 2 MediumLearning Objective: 08-02 Describe
the acquisition and expenditure cycle; including typical source
documents and controls.Source: OriginalTopic: Expenditure Cycle
54.Which of the following expense accounts would not normally be
tested by listing all debits and examining any significant
items?
A.Legal expense.
B.Miscellaneous expense.
C.Repairs and Maintenance.
D.Payroll expense.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-05
Discuss audit procedures for other accounts affected by the
acquisition and expenditure cycle.Source: OriginalTopic:
Expenditure fraud
55.Which of the following would be an indicator of potential
fraud?
A.Photocopies of invoices in the voucher file.
B.Vendor invoices in numerical order.
C.Vendors with only post office box addresses.
D.All of the above indicate potential fraud.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-07
Describe some common errors and frauds in the acquisition and
expenditure cycle and design some audit and investigation
procedures for detecting them.Source: OriginalTopic: Expenditure
Error and Fraud Detection
56.Which of the following fraud detection steps could not be
performed by CAATs?
A.Look for photocopies in invoice files.
B.Look for vendor invoices in numerical order.
C.Look for vendor invoices slightly below the approval
threshold.
D.Look for duplicate vendor numbers.
AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN:
Leveraging TechnologyBlooms: UnderstandDifficulty: 1 EasyLearning
Objective: 08-06 Specify some ways fraud can be found in accounts
payable and cash disbursements.Source: OriginalTopic: Expenditure
fraud
57.Tracing a sample of time clock cards to payroll registers
(journals) is a procedure designed to obtain evidence about the
transaction assertion(s) of
A.Occurrence only.
B.Occurrence and accuracy only.
C.Completeness only.
D.Accuracy only.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
58.The permanent reference files (master files) in a personnel
and payroll database ordinarily do not include which of the
following?
A.Deduction table.
B.Payroll master.
C.Compensation table.
D.Employee earning record.
AACSB: TechnologyAICPA BB: Leveraging TechnologyAICPA FN:
Leveraging TechnologyBlooms: ApplyDifficulty: 3 HardLearning
Objective: 08-08 Describe the payroll cycle; including typical
source documents and controls. [Appendix 8C]Source: OriginalTopic:
Payroll
59.Which of the following situations represents an internal
control weakness in the payroll department?
A.Payroll department personnel are rotated in their duties.
B.Paychecks are distributed by the employees' immediate
supervisor.
C.Payroll records are reconciled with quarterly tax reports.
D.The timekeeping function is independent of the payroll
department.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
60.Which of the following personnel department procedures
reduces the risk of payroll fraud and represents an appropriate
responsibility for the department?
A.Distributing paychecks.
B.Authorizing overtime hours.
C.Authorizing the addition or deletion of employees from the
payroll.
D.Collecting and retaining unclaimed paychecks.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
61.To test the transaction assertion of occurrence in the area
of payroll, the auditor most likely would
A.Select a sample of personnel files and trace the pay rate to
union contracts or other rate rights and obligations.
B.Select a sample of personnel files and trace the pay rate to
payroll department files used in payroll preparation.
C.Select a sample of payroll register entries and recalculate
gross pay, deductions, and net pay.
D.Select a sample of payroll register entries and vouch hours
worked to clock time cards.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
62.Small Corporation uses a Wages Clearing Account for its
payroll disbursements. At the end of February, a reasonably large
debit balance remained in this account. The most likely reason for
this is that
A.More labor cost had been assigned to the expense accounts than
had been paid.
B.Some labor cost had not been properly classified in the
expense accounts.
C.Some employees had not yet cashed their checks.
D.Not enough cash had been transferred to the bank account.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
63.Which of the following is not a major control risk in the
payroll cycle?
A.Paying fictitious "employees."
B.Overpaying for time or production.
C.Losing employees to competitors.
D.Incorrect accounting for costs or expenses.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 1 EasyLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
64.The sampling unit in a test of controls pertaining to the
existence or occurrence of payroll transactions ordinarily is
a(an)
A.Clock card or time ticket.
B.Employee Form W-2.
C.Employee personnel record.
D.Payroll register (journal) entry.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: AICPATopic: Payroll
65.The purpose of segregating the duties of hiring personnel and
distributing payroll checks is to separate the
A.Human resources function from the controllership function.
B.Administrative controls from the internal accounting
controls.
C.Authorization of transactions from the custody of related
assets.
D.Operational responsibility from the record keeping
responsibility.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: AICPATopic: Payroll
66.An auditor most likely would assess control risk at the
maximum if the payroll department supervisor is responsible for
A.Examining authorization forms for new employees.
B.Comparing payroll registers with original batch transmittal
data.
C.Distribute payroll checks to all employees.
D.Hiring all subordinate payroll department employees.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: AICPATopic: Payroll
67.An auditor most likely would extend substantive tests of
payroll when
A.Payroll is extensively audited by the state government.
B.Payroll expense is substantially higher than in the prior
year.
C.Overpayments are discovered in performing tests of
controls.
D.Employees complain to management about too much overtime.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: AICPATopic: Payroll
68.An auditor most likely would perform substantive procedures
on payroll transactions and balances when
A.Cutoff tests indicate a substantial amount of accrued payroll
expense.
B.The assessed level of control risk relative to payroll
transactions is low.
C.Analytical procedures indicate unusual fluctuations in
recurring payroll entries.
D.Accrued payroll expense consists primarily of unpaid
commissions.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: AICPATopic: Payroll
69.An auditor vouched data for a sample of employees in a
payroll register to approved clock card data to provide assurance
that
A.Payments to employees are computed at authorized rates.
B.Employees work the number of hours for which they are
paid.
C.Separation of duties exists between the preparation and
distribution of the payroll.
D.Internal controls relating to unclaimed payroll checks are
operating effectively.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: AICPATopic: Payroll
70.Substantive tests of account balances in the payroll cycle
are likely to include the following procedures except
A.Analytical review procedures.
B.Recalculation of accruals.
C.Comparison of accruals to subsequent payments.
D.Detail vouching of payroll expense entries.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-08
Describe the payroll cycle; including typical source documents and
controls. [Appendix 8C]Source: OriginalTopic: Payroll
71.Which of the following accounts does not appear in the
acquisition and expenditure cycle?
A.Cash.
B.Purchases Returns.
C.Sales Returns.
D.Prepaid Insurance.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
RememberDifficulty: 1 EasyLearning Objective: 08-02 Describe the
acquisition and expenditure cycle; including typical source
documents and controls.Source: OriginalTopic: Expenditure Cycle
72.For which of the following accounts would the matching
concept be the most appropriate?
A.Cost of Goods Sold.
B.Research and Development.
C.Depreciation Expense.
D.Sales.
AACSB: AnalyticAICPA BB: LegalAICPA FN: ResearchBlooms:
UnderstandDifficulty: 1 EasyLearning Objective: 08-03 Give examples
of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
73.Which of the following would not overstate current-period net
income?
A.Capitalizing an expenditure that should be expensed.
B.Failing to record a liability for an expenditure.
C.Failing to record a check paying an item in vouchers
payable.
D.All of the above would overstate net income.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: RememberDifficulty: 2 MediumLearning Objective:
08-01 Identify significant inherent risks in the acquisition and
expenditure cycle.Source: OriginalTopic: Expenditure risks
74.A client's purchasing system ends with the recording of a
liability and its eventual payment. Which of the following best
describes auditors' primary concern with respect to liabilities
resulting from the purchasing system?
A.Accounts payable are not materially understated.
B.Authority to incur liabilities is restricted to one designated
person.
C.Acquisition of materials is not made from one vendor or one
group of vendors.
D.Commitments for all purchases are made only after established
competitive bidding procedures are followed.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 3 HardLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: OriginalTopic: Expenditure
Substantive Testing
75.Which of the following is an internal control activity that
could prevent a paid disbursement voucher from being presented for
payment a second time?
A.Vouchers should be prepared by individuals who are responsible
for signing disbursement checks.
B.Disbursement vouchers should be approved by at least two
responsible management officials.
C.The date on a disbursement voucher should be within a few days
of the date the voucher is presented for payment.
D.The official who signs the check should compare the check with
the voucher and should stamp PAID on the voucher documents.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
76.R. Budd, the purchasing agent of Lake Hardware Wholesalers,
has a relative who owns a retail hardware store. Budd arranged for
hardware to be delivered by manufacturers to the retail store on a
cash-on-delivery (COD) basis, thereby enabling his relative to buy
at Lake's wholesale prices. Budd was probably able to accomplish
this because of Lake's poor internal control over
A.Purchase requisitions.
B.Cash receipts.
C.Perpetual inventory records.
D.Purchase orders.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-03
Give examples of tests of controls over purchases of inventory and
services.Source: OriginalTopic: Expenditure Controls
77.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 are on a subsidiary trial balance of accounts payable.
B.Examine a sample of cash disbursements in the period
subsequent to year-end.
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 unusual relationships between monthly accounts payable
and recorded purchases.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: OriginalTopic: Expenditure
Substantive Testing
78.Which of the following procedures is least likely to be
performed before the balance-sheet date?
A.Observation of inventory.
B.Review of internal control over cash disbursements.
C.Search for unrecorded liabilities.
D.Confirmation of receivables.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective: 08-04
Explain the importance of the completeness assertion for the audit
of accounts payable and list some procedures for a search for
unrecorded liabilities.Source: OriginalTopic: Expenditure
Substantive Testing
79.To determine whether accounts payable are complete, auditors
perform a test to verify that all merchandise received has been
recorded. The population for this test consists of all
A.Vendors' invoices.
B.Purchase orders.
C.Receiving reports.
D.Canceled checks.
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: Risk
AnalysisBlooms: ApplyDifficulty: 2 MediumLearning Objective:
08-0