Question 1

A credit balance in a client's inventory records would suggest failure to record purchases.

Accepted Answer

A) True 
 B)False

Question 2

Martinez CPA was auditing his client,Marvelous Retail Limited.He selected a sample of inventory items from the perpetual records and vouched all additions to receiving reports.This procedure was intended to satisfy which control objective?

Accepted Answer

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

Question 3

Which of the following procedures is an auditor most likely to perform in searching for unrecorded payables?

Accepted Answer

A) Reconcile receiving reports with related cash payments made just prior to year-end. 
B) Compare 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.

Question 4

The statement "account distributions for invoices are appropriate and reviewed independent of preparation" is a specific example of which general control objective?

Accepted Answer

A) Valuation 
B) Completeness 
C) Authorization 
D) Classification

Question 5

The requirement that "perpetual inventory records must be updated as of the date goods are received" is an example of a control that satisfies the "proper period" internal control objective.

Accepted Answer

A) True 
 B)False

Question 6

Explain what is meant by "purchase cut-off "and how it relates to the year-end inventory count.How does the risk of such cut-off errors impact on the auditor's planned procedures?

Accepted Answer

The answer of Explain what is meant by "purchase cut-off...

Question 7

The requirement that supplier invoices in the accounts payable register be matched with purchase orders and receiving reports is an example that satisfies the completeness internal control objective for purchases.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following situations indicates a potential material weakness in internal control over acquisitions and expenditures?

Accepted Answer

A) Purchase orders are not prepared for services that are acquired directly under authorization of department heads. 
B) The person who approves purchases also signs the cheques. 
C) Unacceptable goods are not recorded on receiving reports. 
D) The person who signs the cheques also stamps "paid" on the vouchers.

Question 9

Which of the following is a common substantive test of the valuation assertion for PPE and intangible assets?

Accepted Answer

A) Observe physical inventory taking of the fixed assets and compare with detailed asset records. 
B) For property valued at fair value,examine and verify supporting valuation evidence,such as independent appraisals. 
C) Recalculate amortization expense and trace to general ledger account(s). 
D) From a sample of items from the asset subsidiary records,inspect title or other ownership legal documents,

Question 10

Auditors must place more emphasis on the existence and rights assertions when obtaining evidence about accounts payable.

Accepted Answer

A) True 
 B)False

Question 11

Jack CPA is the auditor of Jill Corporation.Jack followed last year's working papers in selecting accounts payable to confirm.Jack mailed confirmations 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 that Jack should have used the same sample design for accounts payable confirmations this year? If not,what suggestions can you give to improve the design?

Accepted Answer

The answer of Jack CPA is the auditor of Jill...

Question 12

Why are payables vouchers marked "paid" after cheques have been issued in payment of vendor invoices?

Accepted Answer

The answer of Why are payables vouchers marked "paid" after...

Question 13

When auditors trace the test counts they took at the physical inventory count to the final inventory summary,they are gathering evidence on the completeness assertion.

Accepted Answer

A) True 
 B)False

Question 14

The control objective associated with selecting a sample of receiving reports and tracing them to the perpetual inventory records is ________.

Accepted Answer

A) accuracy 
B) completeness 
C) validity 
D) classification

Question 15

An auditee may count the inventory at a date other than the balance sheet date.Which of the following is necessary if the auditor plans to observe the count on a non-balance sheet date?

Accepted Answer

A) Complete recounts by independent teams must be performed. 
B) Perform additional roll-forward or roll-back procedures for the period between the count date and balance sheet date. 
C) Unit cost records must be integrated with production accounting records. 
D) Inventory cannot be a material amount.

Question 16

Employees in the receiving department should inspect materials received as to quality and quantity and prepare a receiving report.

Accepted Answer

A) True 
 B)False

Question 17

Proper segregation of duties in the purchases,payables and payments cycle would be to have ________.

Accepted Answer

A) the accounting department independent of the sales department 
B) the purchasing department independent of the receiving department 
C) the information systems department independent of the accounting department 
D) the sales department independent of the shipping department

Question 18

An auditee uses a cut-off date other than the balance sheet date to ensure PPE purchases have been recorded in the proper period.What impact will this have on the audit?

Accepted Answer

A) No reliance on internal controls for PPE is possible in this audit and a substantial approach must be taken. 
B) No additional audit testing is required beyond the cut-off date. 
C) The audit opinion must be modified due to a material GAAP departure in the financial statements. 
D) The auditor should verify both the cut-off and the transactions in the roll-forward period.

Question 19

The auditor decided to test the completeness of accounts payable by sending confirmations to selected vendors.The auditor's best approach in selecting the vendor accounts to confirm is to __________.

Accepted Answer

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 with small or zero balances 
D) select vendor accounts that are past due

Question 20

A client maintains perpetual inventory records in both quantities and dollars.If the assessed level of control risk is high,an auditor would probably ________.

Accepted Answer

A) insist that the client perform physical counts of inventory items several times during the year 
B) apply gross profit tests to ascertain the reasonableness of the physical counts 
C) increase the extent of tests of controls of the inventory cycle 
D) ask the client to schedule the physical inventory count at the end of the year and with a large number of test counts

Exam 12: The Purchases, payables, and Payments Process

A credit balance in a client's inventory records would suggest failure to record purchases.

Martinez CPA was auditing his client,Marvelous Retail Limited.He selected a sample of inventory items from the perpetual records and vouched all additions to receiving reports.This procedure was intended to satisfy which control objective?

Which of the following procedures is an auditor most likely to perform in searching for unrecorded payables?

The statement "account distributions for invoices are appropriate and reviewed independent of preparation" is a specific example of which general control objective?

The requirement that "perpetual inventory records must be updated as of the date goods are received" is an example of a control that satisfies the "proper period" internal control objective.

Explain what is meant by "purchase cut-off "and how it relates to the year-end inventory count.How does the risk of such cut-off errors impact on the auditor's planned procedures?

The requirement that supplier invoices in the accounts payable register be matched with purchase orders and receiving reports is an example that satisfies the completeness internal control objective for purchases.

Which of the following situations indicates a potential material weakness in internal control over acquisitions and expenditures?

Which of the following is a common substantive test of the valuation assertion for PPE and intangible assets?

Auditors must place more emphasis on the existence and rights assertions when obtaining evidence about accounts payable.

Why are payables vouchers marked "paid" after cheques have been issued in payment of vendor invoices?

When auditors trace the test counts they took at the physical inventory count to the final inventory summary,they are gathering evidence on the completeness assertion.

The control objective associated with selecting a sample of receiving reports and tracing them to the perpetual inventory records is ________.

An auditee may count the inventory at a date other than the balance sheet date.Which of the following is necessary if the auditor plans to observe the count on a non-balance sheet date?

Employees in the receiving department should inspect materials received as to quality and quantity and prepare a receiving report.

Proper segregation of duties in the purchases,payables and payments cycle would be to have ________.

An auditee uses a cut-off date other than the balance sheet date to ensure PPE purchases have been recorded in the proper period.What impact will this have on the audit?

The auditor decided to test the completeness of accounts payable by sending confirmations to selected vendors.The auditor's best approach in selecting the vendor accounts to confirm is to __________.

A client maintains perpetual inventory records in both quantities and dollars.If the assessed level of control risk is high,an auditor would probably ________.