Question 1

The unmatched supplier invoices file,together with the unmatched receiving report file,can be used as audit evidence of ____.

Accepted Answer

A) Unrecorded cash payments 
B) Potential unrecorded liabilities for purchases 
C) Potential overstatement of the ending inventory count. 
D) Improper expense classification 
A) Unrecorded cash payments 
B) Potential unrecorded liabilities for purchases 
C) Potential overstatement of the ending inventory count. 
D) Improper expense classification B

Question 2

What is the usual source of journal entries to record the purchase of inventory in the general ledger?

Accepted Answer

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) Bid quotes updated with cost data from the inventory records department. 
D) Receiving reports updated with cost data from the accounts payable department. 
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) Bid quotes updated with cost data from the inventory records department. 
D) Receiving reports updated with cost data from the accounts payable department. D

Question 3

Which of the following internal control procedures is most likely to be used in order to maintain accurate inventory records?

Accepted Answer

A) Perpetual inventory records are periodically compared with the current cost of individual inventory items. 
B) A just-in-time inventory ordering system keeps inventory levels at a desired minimum. 
C) Requisitions,receiving reports,and purchase orders are independently matched before payment is approved. 
D) Periodic inventory counts are used to adjust the perpetual inventory records. 
A) Perpetual inventory records are periodically compared with the current cost of individual inventory items. 
B) A just-in-time inventory ordering system keeps inventory levels at a desired minimum. 
C) Requisitions,receiving reports,and purchase orders are independently matched before payment is approved. 
D) Periodic inventory counts are used to adjust the perpetual inventory records. D

Question 4

What documentary evidence is appropriate in attempting to determine if recorded purchase transactions are valid and prices on the vendors' invoices are correct?

Accepted Answer

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. 
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.

Question 5

Brown CPA was auditing her client Red Manufacturing Company.She selected a sample of inventory item recorded as issues in the perpetual records and vouched them to production requisitions.Brown's audit procedure was intended to satisfy which control objective?

Accepted Answer

A) Validity. 
B) Completeness. 
C) Authorization. 
D) Accuracy. 
A) Validity. 
B) Completeness. 
C) Authorization. 
D) Accuracy.

Question 6

Limiting access to blank documents,such as purchase orders,is part of the custody duty in the acquisition and expenditure cycle.

Accepted Answer

A) True 
 B)False

Question 7

An auditor wants to perform tests of controls on a client's cash disbursement procedures.If the control procedures leave no audit trail or documentary evidence,the auditor is most likely to test the procedures by ________.

Accepted Answer

A) confirmation and observation 
B) observation and inquiry 
C) analytical procedures and confirmation 
D) inquiry and analytical procedures 
A) confirmation and observation 
B) observation and inquiry 
C) analytical procedures and confirmation 
D) inquiry and analytical procedures

Question 8

In assessing control risk for purchases,an auditor vouches a sample of entries in the accounts payable trial balance to the supporting documents.Which account assertion would this test of controls most likely support?

Accepted Answer

A) Completeness. 
B) Existence or occurrence. 
C) Valuation or allocation. 
D) Presentation 
A) Completeness. 
B) Existence or occurrence. 
C) Valuation or allocation. 
D) Presentation

Question 9

When the auditor selects a sample of inventory items from the perpetual inventory master file then searches out these items in the inventory warehouse,the auditor is collecting evidence to support which assertion?

Accepted Answer

A) Presentation. 
B) Valuation. 
C) Completeness. 
D) Existence. 
A) Presentation. 
B) Valuation. 
C) Completeness. 
D) Existence.

Question 10

The statement "items on the accounts payable register must be supported by a completed voucher package containing a services purchase order and evidence the service was provided",is a specific example of which control objective?

Accepted Answer

A) Environment. 
B) Validity. 
C) Completeness. 
D) Accuracy. 
A) Environment. 
B) Validity. 
C) Completeness. 
D) Accuracy.

Question 11

When auditing merchandise inventory at year-end,the auditor performs a purchase cutoff test to obtain evidence that ________.

Accepted Answer

A) all goods purchased before year-end are received before the physical inventory count 
B) goods held on consignment for customers are not included in the inventory balance 
C) the stock of inventory on hand at year-end is neither pledged nor sold 
D) all goods owned at year-end are included in the inventory balance 
A) all goods purchased before year-end are received before the physical inventory count 
B) goods held on consignment for customers are not included in the inventory balance 
C) the stock of inventory on hand at year-end is neither pledged nor sold 
D) all goods owned at year-end are included in the inventory balance

Question 12

Briefly explain why the auditor's inventory tests counts are conducted in two directions.

Accepted Answer

To test for completeness,the auditor's t

Question 13

Purchase cutoff procedures should be designed to produce evidence about whether or not merchandise that is included in the inventory of the company ________.

Accepted Answer

A) has been paid for 
B) is physically present in the warehouse 
C) is owned by the company (legal title has been transferred) 
D) relates to the shipping documents for the merchandise issued in the company's name 
A) has been paid for 
B) is physically present in the warehouse 
C) is owned by the company (legal title has been transferred) 
D) relates to the shipping documents for the merchandise issued in the company's name

Question 14

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Accepted Answer

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 receiving reports support them. 
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. 
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 receiving reports support them. 
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.

Question 15

When using confirmations to provide evidence about the completeness assertion for accounts payable,the appropriate population most likely would be ________.

Accepted Answer

A) vendors with whom the entity has previously done business 
B) amounts recorded in the accounts payable subsidiary ledger 
C) payees of cheques drawn in the month after the year-end 
D) invoices filed in the company's open invoice file 
A) vendors with whom the entity has previously done business 
B) amounts recorded in the accounts payable subsidiary ledger 
C) payees of cheques drawn in the month after the year-end 
D) invoices filed in the company's open invoice file

Question 16

The accounts payable trial balance is a list of payable amounts by vendor.This total should equal the control account total in the general ledger.

Accepted Answer

A) True 
 B)False

Question 17

To uncover liabilities from actual or potential litigation,which of the following procedures is required by CAS 501?

Accepted Answer

A) Sending an inquiry letter to suppliers with which the auditee normally does business 
B) Sending an inquiry letter prepared to the auditee's lawyers. 
C) Sending confirmations to the insurance companies with which the auditee has coverage. 
D) Sending bank confirmations to all financial institutions with which the auditee has done business. 
A) Sending an inquiry letter to suppliers with which the auditee normally does business 
B) Sending an inquiry letter prepared to the auditee's lawyers. 
C) Sending confirmations to the insurance companies with which the auditee has coverage. 
D) Sending bank confirmations to all financial institutions with which the auditee has done business.

Question 18

Mary Monitor CPA noted that ABC Co.Ltd.received goods prior to year-end and properly included them in the physical count of ending inventory.However,CPA did not record the purchase in the accounting records.In this case,which of the following adjustments should be made?

Accepted Answer

A) Debit Purchases,credit Cost of Goods Sold. 
B) No adjustment is necessary. 
C) Debit Inventory,credit Accounts Payable. 
D) Debit Cost of Goods Sold,credit Accounts Payable. 
A) Debit Purchases,credit Cost of Goods Sold. 
B) No adjustment is necessary. 
C) Debit Inventory,credit Accounts Payable. 
D) Debit Cost of Goods Sold,credit Accounts Payable.

Question 19

Information gathering about the control structure often begins with an internal control questionnaire.

Accepted Answer

A) True 
 B)False

Question 20

Comparing the results of a physical inventory count to the perpetual inventory records is considered a part of the recording function.

Accepted Answer

A) True 
 B)False

Exam 12: The Purchases, payables, and Payments Process

The unmatched supplier invoices file,together with the unmatched receiving report file,can be used as audit evidence of ____.

What is the usual source of journal entries to record the purchase of inventory in the general ledger?

Which of the following internal control procedures is most likely to be used in order to maintain accurate inventory records?

What documentary evidence is appropriate in attempting to determine if recorded purchase transactions are valid and prices on the vendors' invoices are correct?

Brown CPA was auditing her client Red Manufacturing Company.She selected a sample of inventory item recorded as issues in the perpetual records and vouched them to production requisitions.Brown's audit procedure was intended to satisfy which control objective?

Limiting access to blank documents,such as purchase orders,is part of the custody duty in the acquisition and expenditure cycle.

An auditor wants to perform tests of controls on a client's cash disbursement procedures.If the control procedures leave no audit trail or documentary evidence,the auditor is most likely to test the procedures by ________.

In assessing control risk for purchases,an auditor vouches a sample of entries in the accounts payable trial balance to the supporting documents.Which account assertion would this test of controls most likely support?

When the auditor selects a sample of inventory items from the perpetual inventory master file then searches out these items in the inventory warehouse,the auditor is collecting evidence to support which assertion?

The statement "items on the accounts payable register must be supported by a completed voucher package containing a services purchase order and evidence the service was provided",is a specific example of which control objective?

When auditing merchandise inventory at year-end,the auditor performs a purchase cutoff test to obtain evidence that ________.

Briefly explain why the auditor's inventory tests counts are conducted in two directions.

Purchase cutoff procedures should be designed to produce evidence about whether or not merchandise that is included in the inventory of the company ________.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

When using confirmations to provide evidence about the completeness assertion for accounts payable,the appropriate population most likely would be ________.

The accounts payable trial balance is a list of payable amounts by vendor.This total should equal the control account total in the general ledger.

To uncover liabilities from actual or potential litigation,which of the following procedures is required by CAS 501?

Mary Monitor CPA noted that ABC Co.Ltd.received goods prior to year-end and properly included them in the physical count of ending inventory.However,CPA did not record the purchase in the accounting records.In this case,which of the following adjustments should be made?

Information gathering about the control structure often begins with an internal control questionnaire.

Comparing the results of a physical inventory count to the perpetual inventory records is considered a part of the recording function.

Introduction to Auditing

Auditors Professional Roles and Responsibilities

Auditors Ethical and Legal Responsibilities

Reports on Audited Financial Statements

Preliminary Audit Planning: Understanding the Auditees Business

Assessing Risks in an Audit Engagement

Internal Control Over Financial Reporting

Audit Evidence and Assurance

Control Assessment and Testing

Audit Sampling

The Revenues, receivables, and Receipts Process and Cash Account Balance

Payroll and Production Processes

The Finance and Investment Process

Completing the Audit Work

Applying Professional Judgment to Form the Audit Opinion and Issue the Audit Report

Other Public Accounting Services and Reportsreviews and Compilations

Professional Rules of Conduct Details and Auditor Responsibilities

The Audit of Accounting Estimates: Basic Material Relating to Accounting Estimates

Legal Liability Cases

Other Professional Accounting Services and Reports, including Fraud Auditing

Filters