Q&A Hero

Q: Assertions about classes of transactions and events for the period under audit include A. existence, completeness, and accuracy. B. existence, completeness, and classification. C. occurrence, completeness, and cutoff. D. occurrence, completeness, and valuation and allocation.

Q: The mailing of disbursement checks and remittance advices should be controlled by the employee who A. signed the checks last. B. approved the vouchers for payment. C. matched the receiving reports, purchase orders and vendors' invoices. D. verified the mathematical accuracy of the vouchers and remittance advices.

Q: Which of the following is an internal control that would 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 signing the check should compare the check with the voucher and should "cancel" the voucher documents by marking them "paid."

Q: Which of the following control activities is not usually performed in the accounts payable department? A. Determining the mathematical accuracy of the vendor's invoice. B. Having an authorized person approve the voucher. C. Controlling the mailing of the check and remittance advice. D. Matching the receiving report with the purchase order.

Q: Budd, the purchasing agent for 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 C.O.D. 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.

Q: In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of A. existence. B. rights and obligations. C. completeness. D. valuation and allocation.

Q: If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to A. primarily vendors with large accounts payable balances. B. primarily vendors with small or zero accounts payable balances. C. all vendors. D. a random sample of all vendors.

Q: Accounts payable confirmations are used to test A. both the existence and completeness audit assertions. B. only the existence audit assertion. C. only the completeness audit assertion. D. either existence or completeness, depending upon the response rate.

Q: An examination of the balance in the accounts payable account is ordinarily not designed to A. determine that the amounts represent obligations of the company. B. verify that accounts payable were properly authorized. C. ascertain the reasonableness of recorded liabilities. D. determine that all existing liabilities at the balance sheet date have been recorded.

Q: Which of the following procedures would an auditor least likely perform before the balance sheet date? A. Assessment of inherent risk. B. Observation of merchandise inventory. C. Assessment of control risk. D. Identification of related parties.

Q: 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.

Q: Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable? A. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for. B. Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to search for unrecorded vendor's invoices. C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports. D. Confirming accounts payable balances with known suppliers who have zero balances.

Q: When searching for unrecorded liabilities at year-end, the population identified for sampling would be A. cash receipts from related parties recorded before year-end. B. creditors whose accounts appear on a subsidiary trial balance of accounts payable. C. cash disbursements recorded in the period subsequent to year-end. D. invoices dated a few days before and after year-end.

Q: Purchase cutoff procedures should be designed to test whether or not all inventory A. purchased and received before the year-end was recorded before year-end. B. on the year-end balance sheet was carried at lower of cost or market. C. on the year-end balance sheet was paid for by the company. D. owned by the company is in the possession of the company.

Q: Substantive procedures to examine the cutoff assertion for accounts payable include A. selecting a sample of vouchers and agreeing them to authorized purchase orders. B. selecting a sample of vouchers and agreeing them to the purchases journal. C. selecting a sample of receiving reports around year-end and comparing dates on related vouchers to dates in the purchases journal. D. recomputing the mathematical accuracy of a sample of vendor invoices.

Q: Substantive procedures to examine the completeness assertion for accounts payable include A. selecting a sample of vouchers and agreeing them to authorized purchase orders. B. selecting a sample of vouchers and tracing them to the purchases journal. C. comparing dates on vouchers to dates in the purchases journal. D. recomputing the mathematical accuracy of a sample of vendor invoices.

Q: Substantive procedures to examine the occurrence assertion for accounts payable include A. selecting a sample of vouchers and agreeing them to authorized purchase orders. B. selecting a sample of vouchers and tracing them to the purchases journal. C. comparing dates on vouchers to dates in the purchases journal. D. recomputing the mathematical accuracy of a sample of vendor invoices.

Q: 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 procedure most likely was to A. identify unusually 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.

Q: When an auditor selects a sample of items from the vouchers payable register for the last month of the period under audit and traces these items to underlying documents, the auditor is gathering evidence primarily in support of the assertion that A. recorded obligations were paid. B. incurred obligations were recorded in the correct period. C. recorded obligations were valid. D. cash disbursements were recorded as incurred obligations.

Q: Which of the following is the most effective control activity to detect vouchers prepared for the payment of goods that were not received? A. Counting of goods upon receipt in the storeroom. B. Matching of purchase order, receiving report, and vendor invoice for each voucher in the accounts payable department. C. Comparison of goods received with goods requisitioned in the receiving department. D. Verification of vouchers for accuracy and approval in the internal audit department.

Q: 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.

Q: An entity's internal control requires that for every check request 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.

Q: An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by A. inquiry and analytical procedures. B. confirmation and observation. C. observation and inquiry. D. analytical procedures and confirmation.

Q: An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the greatest assurance that this control is operating effectively? A. Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier than the receiving reports. B. Select and examine receiving reports and ascertain that the related canceled checks are dated no later than the receiving reports. C. Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier than the checks. D. Select and examine canceled checks and ascertain that the related receiving reports are dated no later than the checks.

Q: Tests of controls for the occurrence assertion for purchases include all of the following except: A. evaluating proper segregation of duties. B. testing a sample of vouchers for an authorized purchase order. C. testing a sample of vouchers for matching receiving reports. D. tracing a sample of vouchers to purchases journal.

Q: As an in-charge auditor, you are reviewing a summary of control weaknesses in cash disbursement procedures. Which one of the following weaknesses, standing alone, should cause you the least concern? A. Checks are signed by only one person. B. Signed checks are distributed by the controller to approved payees. C. Treasurer fails to establish validity of names and addresses of check payees. D. Cash disbursements are made directly out of cash receipts.

Q: With respect to a small company's system of purchasing supplies, an auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been A. requested and approved by authorized individuals who have no incompatible duties. B. received, counted, and checked to quantities and amounts on purchase orders and invoices. C. properly recorded as assets and systematically amortized over the estimated useful life of the supplies. D. used in the course of business and solely for business purposes during the year under audit.

Q: In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the checks also A. reviews the monthly bank reconciliation. B. returns the checks to accounts payable. C. is denied access to the supporting documents. D. is responsible for mailing the checks.

Q: Operating control over the check signature plate normally should be the responsibility of the A. Secretary. B. Chief accountant. C. Vice President of Finance. D. Treasurer.

Q: A voucher A. is a bill from the vendor. B. is a document that records the receipt of goods. C. is a document that requests goods from an authorized individual in the entity. D. serves as the basis for recording a vendor's invoice in the purchases journal.

Q: The authority to accept incoming goods in receiving should be based on a(an) A. vendor's invoice. B. materials requisition. C. bill of lading. D. approved purchase order.

Q: For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the A. receiving report and the purchase order. B. receiving report and the voucher. C. vendor's packing slip and the purchase order. D. vendor's packing slip and the voucher.

Q: An entity's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement 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.

Q: Which of the following audit procedures is least likely to detect an unrecorded liability? A. Analysis and recomputation of interest expense. B. Analysis and recomputation of depreciation expense. C. Mailing of standard bank confirmation forms. D. Reading of the minutes of meetings of the board of directors.

Q: Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the entity's employees? A. Test footings in the accounts payable ledger. B. Reconcile unpaid invoices to vendors' statements. C. Prepare a schedule of accounts payable. D. Mail confirmations for selected account balances.

Q: The auditor is most likely to verify accrued commissions payable in conjunction with the A. sales cutoff review. B. verification of employees. C. review of post balance sheet date disbursements. D. examination of trade accounts payable.

Q: The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts payable because A. accrued liabilities usually pertain to services of a continuing nature, while accounts payable are the result of completed transactions. B. accrued liability balances are less material than accounts payable balances. C. evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts payable is readily available. D. accrued liabilities at year-end will become accounts payable during the following year.

Q: 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. accuracy. B. occurrence. C. cutoff. D. classification.

Q: 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.

Q: An auditor compares information on canceled checks with information contained in the cash disbursements journal. The objective of this test is to determine that A. recorded cash disbursement transactions are properly authorized. B. proper cash purchase discounts have been recorded. C. cash disbursements are for goods and services actually received. D. no discrepancies exist between the data on the checks and the data in the journal.

Q: An auditor performs a test to determine whether all merchandise was received for which the entity was billed. The population for this test consists of all A. merchandise received. B. vendors' invoices. C. canceled checks. D. receiving reports.

Q: An entity erroneously recorded a large purchase twice. Which of the following internal controls would be most likely to detect this error in a timely and efficient manner? A. Footing the purchases journal. B. Reconciling vendors' monthly statements with subsidiary payable ledger accounts. C. Tracing totals from the purchases journal to the ledger accounts. D. Sending written quarterly confirmations to all vendors.

Q: An important primary purpose of the auditor's review of the entity's procurement system should be to determine the effectiveness of the activities to protect against A. improper materials handling. B. unauthorized persons issuing purchase orders. C. mispostings of purchase returns. D. excessive shrinkage or spoilage.

Q: The cash disbursements journal is also called the A. voucher register. B. purchases journal. C. check register. D. accounts payable subsidiary ledger.

Q: To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all A. payment vouchers. B. receiving reports. C. purchase requisitions. D. vendors' invoices.

Q: Unrecorded liabilities are most likely to be found during the review of which of the following documents? A. Unpaid bills. B. Shipping records. C. Bills of lading. D. Unmatched sales invoices.

Q: The accounts payable department receives the purchase order form to accomplish all of the following except to: A. compare invoice price to purchase order price. B. ensure that the purchase had been properly authorized. C. ensure that the goods had been received by the party requesting the goods. D. compare quantity ordered to quantity purchased.

Q: The cutoff assertion for accounts payable includes A. determining whether all accounts payable are recorded. B. determining whether all accounts payable actually are liabilities. C. determining whether all accounts payable are recorded in the proper period. D. determining whether all accounts payable are properly classified in the financial statements.

Q: The occurrence assertion for accounts payable includes A. determining whether all accounts payable are recorded. B. determining whether all accounts payable actually are liabilities. C. determining whether all accounts payable are recorded in the proper period. D. determining whether all accounts payable are properly classified in the financial statements.

Q: In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? A. Completeness. B. Occurrence. C. Accuracy. D. Classification.

Q: A debit memo A. reduces the amount of accounts payable due to a vendor. B. reduces accounts payable when payment is made. C. is used by vendors to record cash payments received. D. authorizes a debit to purchases when goods are received.

Q: Which of the following accounts is not affected by cash disbursement transactions? A. Cash. B. Accounts payable. C. Purchase discounts. D. Purchase returns.

Q: A product cost is A. an expense allocated by a systematic procedure. B. recognized during the period in which a liability is incurred. C. recognized in the period during which related revenue is recognized. D. recognized in the period in which cash is spent.

Q: Accounts payable confirmations are used less frequently by auditors than accounts receivable confirmations.

Q: Analytical procedures can be used to examine the reasonableness of accounts payable and accrued expenses.

Q: Because of the low volume of purchase return transactions, the auditor normally does not test the controls associated with these transactions.

Q: After the controls are tested, the auditor sets the achieved level of control risk.

Q: The accounts payable department is responsible for ensuring that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records.

Q: The principal business objectives of the purchasing process are acquiring goods and services and paying for those goods and services.

Q: The purchase journal is referred to as a check register.

Q: A receiving report is used to document the ordering of goods.

Q: A purchase transaction usually begins with the preparation of a purchase order.

Q: Product costs should be matched directly with specific transactions and are recognized upon recognition of revenue.

Q: Which of the following control activities may prevent the failure to bill customers for some shipments? A. Each shipment should be supported by a prenumbered sales invoice that is accounted for. B. Each sales order should be approved by authorized personnel. C. Sales journal entries should be reconciled to daily sales summaries. D. Each sales invoice should be supported by a shipping document.

Q: An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess the assertion of A. authorization and accuracy. B. completeness. C. cutoff. D. occurrence.

Q: Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because A. entities are more likely to overstate than understate revenues. B. entities are more likely to understate than overstate revenues. C. it is difficult to determine when services have been performed. D. the allowance for doubtful accounts often is understated.

Q: An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also A. records the journal entry to recognize the cash receipt. B. prepares the monthly bank reconciliation. C. prepares the daily deposit slip. D. approves customer discounts.

Q: All of the following are important controls over credit memos except: A. proper segregation of duties to ensure that sales discounts taken were earned. B. credit memos should be approved by someone other than whoever initiated it. C. credit memos should be supported by a receiving document for returned goods. D. proper segregation of duties between access to customer records and authorizing credit memos.

Q: Which is not a key segregation of duties for the revenue process? Different parties should A. prepare shipping orders and prepare bills of lading. B. perform the credit and billing functions. C. perform the shipping and billing functions. D. receive cash and adjust accounts receivable.

Q: Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mailroom? A. The cashier prepares the daily deposit. B. The cashier makes the daily deposit at a local bank. C. The cashier posts the receipts to the accounts receivable subsidiary ledger cards. D. The cashier endorses the checks.

Q: For the most effective internal control, monthly bank statements should be received directly from the banks and reviewed by the A. controller. B. cash receipts accountant. C. cash disbursement accountant. D. internal auditor.

Q: Immediately upon receipt of cash, a responsible employee should A. record the amount in the cash receipts journal. B. prepare a listing of remittances. C. update the subsidiary accounts receivable records. D. prepare a deposit slip in triplicate.

Q: Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control activities could cause an A. understatement of revenues, receivables, and inventory. B. overstatement of revenues and receivables and an understatement of inventory. C. understatement of revenues and receivables and an overstatement of inventory. D. overstatement of revenues, receivables, and inventory.

Q: Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control activities over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control activities could cause an A. understatement of revenues, receivables, and inventory. B. overstatement of revenues and receivables and an understatement of inventory. C. understatement of revenues and receivables and an overstatement of inventory. D. overstatement of revenues, receivables, and inventory.

Q: Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs? A. Employees responsible for authorizing sales and bad debt write-offs are denied access to cash. B. Shipping documents and sales invoices are matched by an employee who does not have authority to write-off bad debts. C. Employees involved in the credit-granting function are separated from the sales function. D. Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Q: An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about A. valuation and allocation. B. completeness. C. existence. D. rights and obligations.

Q: Which of the following is the best argument against the use of negative accounts receivable confirmations? A. The cost-per-response is excessively high. B. There is no way of knowing if the intended recipients received them. C. Recipients are likely to feel that, in reality, the confirmation is a subtle request for payment. D. The inference drawn from receiving no reply may not be correct.

Q: In connection with the examination of financial statements by an independent auditor, management suggests that members of the internal audit staff be utilized to minimize audit costs. Which of the following tasks could most appropriately be delegated to the internal audit staff? A. Selection of accounts receivable for confirmation, based upon the internal auditor's judgment as to how many accounts and which accounts will provide sufficient coverage. B. Preparation of schedules for negative accounts receivable responses. C. Evaluation of the internal control for accounts receivable and sales. D. Determination of the adequacy of the allowance for doubtful accounts.

Q: Audit documents often include an aged trial balance of accounts receivable as of the balance sheet date. This aging is used by the auditor to A. evaluate internal control over credit sales. B. test the accuracy of recorded credit sales. C. evaluate the allowance for doubtful accounts. D. verify the existence of the recorded receivables.

Q: An aged trial balance of accounts receivable is normally used by the auditor to A. verify the existence of recorded receivables. B. ensure that all accounts are promptly credited. C. evaluate the results of tests of controls. D. evaluate the provision for bad debts.