Chapter 8

When confirming accounts payable, emphasis should be put on what kind of accounts?
Accounts with small or zero balances.
"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?
Existence or occurrence.
"All purchase orders are supported by requisitions from proper persons" is a specific example of which general assertion?
Existence or occurrence.
"Observe the work habits of purchasing department personnel" is an audit procedure intended to satisfy which control assertion?
Cash disbursements are authorized by
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.
Vouchers should be stamped PAID to
Prevent duplicate payment
A voucher is used to
provide a source document for recording the purchase of a good or service.
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to
determine that purchases were properly recorded.
The usual source for journal entries posted to the general ledger to record the purchase of inventory is 10. The usual source for journal entries posted to the general ledger to record the purchase of inventory is
vouchers payable journal from the accounts payable department.
Which of the following would detect the understatement of a purchase discount?
Compare purchase invoice terms with disbursement records and checks.
Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure?
Voucher packages are authorized and checks are signed by the same person.
Which of the following client control procedures is not usually performed in the vouchers payable (accounts payable) department?
Controlling the mailing of the check and remittance advice.
When auditing merchandise inventory at yearend, the auditor performs a purchase cutoff test to obtain evidence that
all goods owned at yearend are included in the inventory balance.
Auditors may conclude that depreciation charges are too small by noting
large and frequent losses on assets retired.
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
select vendor accounts based on the number of purchases from vendors during the year.
What evidence is appropriate to determine whether recorded purchase transactions are valid and the vendors charged the correct prices?
Receiving reports and purchase orders.
Purchase cutoff procedures should be designed to produce evidence of whether merchandise is included in the inventory of the client company if the company
holds legal title to the merchandise.
Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment (fixed asset) account are not understated?
Repairs and maintenance expense.
Which of the following would not be included in the supporting documents for a voucher?
Blank check.
A voucher would typically contain
a purchase requisition, purchase order, vendor invoice, receiving report, and check copy.
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be
vendors with whom the entity has previously done business.
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.
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
canceled checks.
An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
observation and inquiry.
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
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
stamped "paid" by the check signer.
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
When auditing PPE, the auditor's approach is generally to
Examine evidence supporting additions during the year.
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.
In performing a search for unrecorded retirements of fixed assets, an auditor most likely would
inspect the property ledger and the insurance and tax records, and then tour the client's facilities.
A weakness in internal control over recording retirements of equipment may cause an auditor to
select certain items of equipment from the accounting records and locate them in the plant.
Failure to record a liability generally results in
an overstatement of profit
Improperly capitalizing an expense item results in.
overstatement of profit in the current year and understatement in future years
A liability for a long term purchase contract should generally be recognized when
the goods are received.
Which of the following expense accounts would not normally be tested by listing all debits and examining any significant items?
Payroll expense.
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.
Which of the following fraud detection steps could not be performed by CAATTs?
Look for photocopies in invoice files.