Section L Question Sets (copy)

When auditors choose to send confirmations of accounts payable, accounts with _______.

zero or small balances should be among those selected for confirmation because they may be more understated than accounts with large balances.

The purchases cutoff test involves determining that _______.

purchase transactions occurring near the balance sheet date are recorded in the proper period.

Goods in transit shipped FOB (free-on-board) destination should _______.

remain in the inventory of the seller and be excluded from the purchaser’s inventory and accounts payable until arrival at the purchasing entity’s receiving department.

The inherent risk that accounts payable may be omitted or otherwise understated typically is

high

Which of the following would be an indicator of potential fraud?

All of these (the answer) indicate potential fraud:

a. Vendor invoices in numerical order

b. Photocopies of invoices in the voucher file

c. Vendors with only post office box addresses

Which of the following fraud detection steps could not be performed by CAATs?

Look for photocopies in invoice files.

Which of the following would detect the understatement of a purchase discount?

Compare purchase disbursement records and checks with invoice   terms.

Auditors should inspect the "unmatched receiving report" file to determine whether the liability for the receipt of goods has been recorded.

True

When goods are received, the receiving clerk should match the goods with the

vendor's shipping document and the purchase order.

Computer controls that might be found in an advanced online acquisition and expenditure system would not include

all vendor invoices are prenumbered and the numbers accounted for.

Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?

The check signer reviews and cancels the voucher packets.

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

observe the separation of duties concerning personnel responsibilities and   payroll disbursement.

A CPA learns that his client has paid a vendor twice for the same shipment; once based upon the original invoice and once based upon the monthly statement sent from the vendor. A control procedure that should have prevented this duplicate payment is

attachment of the receiving report to the disbursement report.

The typical functions of the personnel and payroll cycle would not include

labor relations.

An internal control questionnaire for payroll processing occurrence assertion would not include which of the following questions?

Are all wage rates determined by contract or approved   by a personnel officer?

In order to ensure appropriate segregation of duties, the supervisor in each department handles the custody of the payroll checks.

False!

An auditor is planning the testing of the accounts payable balance. The auditor's main concerns should be

completeness and cutoff.

The auditor traces items from the receiving reports to the accounts payable journal in order to satisfy the

completeness assertion.

When auditing liabilities account balances, auditors are most concerned with management' assertion about

completeness.

When confirming accounts payable, emphasis should be put on what kind of accounts?

Accounts with small or zero balances.

Which of the following procedures is least likely to be performed before the balance-sheet date?

Search for unrecorded liabilities.

Specific balance assertions typical of accounts payable would not include

accounts payable are not pledged as collateral.

An audit plan for accounts payable would not include which of the following procedures?

Reviewing cash receipts for the period after year-end.

The auditors' "search for unrecorded liabilities" should emphasize payments made shortly after the end of the year.

True

“all purchase orders are supported by requisitions from proper persons” is a specific example of which management assertion

occurrence

for which of the following accounts would be the matching concept be the most appropriate

cost of goods sold

as inherent risk factors vary from industry to industry, from client to client, from year to year, each audit should be identical to address unique risks

false

the purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the

authorization of transactions from the custody of related assets

failure to record a liability generally results in

an overstatement of profit

which of the following departments most likely would approve changes in pay rates and deductions from employee salaries

personnel

“recorded vouchers in the voucher register supported by completed voucher documentation” is a specific example of which management assertion

occurrence

which of the following would not overstate current-period net income

failing to record a check paying an item in vouchers payable

relevant assertions relating to purchases of materials or goods are

occurrence, completeness, accuracy, cutoff, classification

cash disbursements are authorized by

a complete voucher package

the usual source for journal entries posted to the general ledge to record the purchase of inventory is

vouchers payable journal from the accounts payable department

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

accounts payable are not materially understated

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

refusal by the purchasing department to approve the vendor

when verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase

invoices

an entity’s purchasing process consists of activities related to the acquisition of, and payment for, goods and services

true

which of the following controls would be most effective in assuring that recorded purchases are free of material errors

purchase orders, receiving reports, and vendor’s invoices are independently matched in preparing vouchers

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 regarding

cutoff

the purchasing department

should obtain competitive bids from vendors

key assertions relating to accounts payable account balances are

existence, rights and obligations, completeness, valuation and allocation

auditors usually focus on which assertion when auditing current liabilities

completeness

if goods ordered under a binding purchase commitment permanently decline in value before the agreed on purchase prices, a company should

record a loss for items not yet received

the rights and obligations assertion with respect to accounts payable relates to whether the

accounts payable reflect the recorded liability of the entity

which of the following accounts does not appear in the acquisition and expenditure cycle

sales returns

in auditing accounts payable, an auditor’s procedures most likely would focus primarily on management’s assertion of

completeness

which of the following accounts would most likely be audited in connection with a related balance-sheet account

property tax expense

which of the following payroll control activities would most effectively ensure that payment is made only for work performed

require employees to have their direct supervisors approve their time cards

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

observe the separation of duties concerning personnel responsibilities and payroll disbursement

in assessing inherent risk for purchasing process assertions, the auditor should

consider pervasive factors influencing the understatement or overstatement of payables and expenses

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 cash-on-delivery basis, therefore 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

purchase orders

for effective internal accounting control, the accounts payable department should compare the info on each vendor’s invoice with the

receiving report and the purchase order

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,

part of the audit trail is altered

in assessing inherent risk for the purchasing process assertions, the auditor should consider pervasive factors that

influence the understatement or overstatement of payables and expenses

which of the following activities performed by a department supervisor most likely would help to prevent or detect a payroll fraud

approving a summary of hours each employee worked during the pay period

the second category of misstatements is “____”, which includes the failure to record deferred revenue obligations or normal accurals

liabilities, payables, reserves, and accrual estimate failure

an audit team was testing sources documents in the purchasing cycle and identified the following circumstances. which of the following would be most inductive of source document fraud

the same invoice number appears on different invoices from the same vendor

which of the following fraud signs could be detected by using data and analytic techniques

all of these answers are correct

which of the following results of analytical procedures would most likely indicate possible unrecorded liabilities

ratio of accounts payable to total current liabilities of 3:1, compared to 5:1 for the prior period

as part of a fraud audit, a CPA wishes to identify employees with invalid Social Security numbers in the client’s payroll-transaction data. which of the following audit tests of controls using computer-assisted audit techniques would best meet the objective

comparing Social Security numbers paid in the payroll transaction file to a file of government- authorized Social Security numbers

for the copy of the purchase order that goes to the receiving department, it is best to

leave off the quantity of the goods ordered

an auditor suspects that certain client employees are ordering merchandise for themselves over the internet without recording the purchase or receipt of the merchandise

cash disbursements

which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time

the official who signs the check should compare the check with the voucher and should stamp “PAID” on the voucher documents

the category of misstatements relevant to the purchasing and payroll cycles that consists of error or irregularities in approach, theory, or calculation associated with the expense of assets or understatement of liabilities is

expense recording issues

in a well-designed internal control, employees in the same department most likely would approve purchase orders, and also

negotiate terms with vendors

management and the auditor have to be alert to the risk of collusion with

vendors and vendor kickbacks to employees

the expenditure process is particularly prone to a risk of employee fraud through

unauthorized disbursements of cash

mailing disbursement checks and remittance advices should be controlled by the employee who

signs the checks last

canceling invoices with a “PAID” stamp after payment is a control that relates to which assertion

existence or occurence

which of the following situations most likely could lead to an embezzlement scheme

access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement

allison everhart, an employee in accounts payable, believes she can run a fictitious invoice through the accounts payable system and collect the money. she knows payments are subject to an audit. which account would be the best to hide the fraud

consulting service expense

which of the following internal control activities is not usually performed in the vouchers payable department

accounting for unused prenumbered purchase orders and receiving reports

which of the following control activities is not usually performed in the vouchers payable department

controlling the mailing of the check and remittance advice

the quality of entity level controls is important to

the effective functioning of transaction level controls

a risk related to what can go wrong with respect to authorizing purchases related to

purchases being made from unauthorized vendors

which of the following situations indicates a potential material weakness in internal control over acquisition and expenditrue

the same person authorizes voucher packages and signs checks

who should be responsible for preparing a purchase order, matching the receiving report and invoice with the purchase order, and paying for the related purchase

the purchasing department is responsible for preparing the purchase order, the accounts payable department is responsible for matching documents, and the treasurer is responsible for making payment

when the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the account department the

debit memo

vouchers should be stamped PAID to

prevent duplicate payment

which of the following would not be included in the supporting documents for a voucher

blank check

under properly designed internal control, the same employee most likely would match vendors’ invoices with receiving reports and also

recompute the calculations on vendors’ invoices

many clients build in redundant controls

so if one control does not find a misstatement, another control will detect the problem

a “blind purchase order” is a

purchase order with the quantity deleted to be used in the receiving department

which of the following describes a weakness in accounts payable procedures

the accounts payable manager issues purchase orders

a voucher package is used to

provide a source department for recording the purchase of a good or service

a risk related to what can go wrong with respect to receiving goods is

goods received may not have been ordered

a strong tone at the top about the importance of accurate financial reporting

discourages the under accrual of expenses and liabilities

the authority to accept incoming goods in receiving should be based on an

approved purchase order

which of the following activities most likely would be considered a weakness in an entity’s internal control over payroll

the employee who distributes payroll check returns unclaimed payroll checks to the payroll department

a “voucher” is a

none of these answers are correct

which of the following control questions relates to the existence and occurrence objective in purchasing and accounts payable

are receiving reports prepared for each item received?

a company employees three accounts payable clerks and one treasurer

clerk 3 mails the checks and remittances after they have been signed

a voucher would typically contain

a purchase requisition, purchase order, vendor invoice, receiving report, and check copy

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

canceled checks

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

personnel in the furniture company’s purchasing department should compare the purchase requisition with the purchase order

for control purposes, the quantities of materials ordered may be omitted from the copy of the purchase order that is

forwarded to the receiving department

a company should make all payments by

check or electronic funds transfer

an audit team most likely would assess control risk at a minimum if the payroll department supervisor is responsible for

authorizing payroll rate changes for all employees