Question 1

A debit memo:

Accepted Answer

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. 
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. A

Question 2

Listed below are six of the seven assertions about classes of transactions and events made in the purchasing process. For each, give an example of how an auditor could use one of the typical documents in the purchasing process to test the assertion.
Occurrence
Completeness
Authorization
Accuracy
Cutoff
Classification

Accepted Answer

Occurrence - The receiving report provides evidence regarding the occurrence assertion. This document records the receipt of goods. The auditor can test vouchers for the presence of an authorized receiving report to ensure that goods were actually received.
Completeness - The auditor can use the entity's vouchers and vendor invoices to test for completeness. In this case, the auditor will start with these documents and trace them to the purchases journal. This will provide assurance that all purchased items have been recorded.
Authorization - One example of a document used to test authorization is the purchase requisition form. This form is used to request goods or services for an authorized individual. The auditor can check that all purchase requisitions have been properly approved by reviewing these documents for authorization. This can be an important step in testing controls.
Accuracy - To test accuracy, an auditor can recalculate the amounts listed on the vendor invoice. This will help ensure that the proper amounts were paid and recorded in the journals.
Cutoff - The dates on the receiving reports and the dates on the vouchers can be compared with the dates in the purchases journal to test that the purchase transactions were recorded in the proper period.
Classification - The purchases journal is used to test for proper classification through an auditor's review of the journal. The journal provides details about each of the transactions made and to which accounts the transactions were posted.

Question 3

The authority to accept incoming goods in receiving should be based on a(n):

Accepted Answer

A) vendor's invoice. 
B) materials requisition. 
C) bill of lading. 
D) approved purchase order. 
A) vendor's invoice. 
B) materials requisition. 
C) bill of lading. 
D) approved purchase order. D

Question 4

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

Accepted Answer

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. 
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.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Substantive procedures to examine the cutoff assertion for accounts payable include:

Accepted Answer

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. 
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.

Question 7

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?

Accepted Answer

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. 
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.

Question 8

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the checks also:

Accepted Answer

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. 
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.

Question 9

The accounts payable department receives the purchase order form to accomplish all of the following except to:

Accepted Answer

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. 
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.

Question 10

Identify whether the following tests are substantive analytical procedures, tests of details of transactions, or tests of details of account balances:
1)Test a sample of purchase requisitions for proper authorization.
2)Test transactions around year-end to determine if they are recorded in the proper period.
3)Review results of confirmation of selected accounts payable.
4)Compare payables turnover to previous years' data.
5)Obtain selected vendors' statements and reconcile to vendor accounts.
6)Compare purchase returns and allowances as a percentage of revenue or cost of sales to industry data.

Accepted Answer

1)Tests of details of transactions.
2)Te

Question 11

Match the test of controls described below to the appropriate assertion it is used to test.
-Review monthly bank reconciliations

Accepted Answer

A) Completeness 
B) Occurrence 
C) Accuracy 
D) Cutoff 
E) Authorization
F)Classification 
A) Completeness 
B) Occurrence 
C) Accuracy 
D) Cutoff 
E) Authorization
F)Classification

Question 12

Purchase cutoff procedures should be designed to test whether or not all inventory:

Accepted Answer

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. 
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.

Question 13

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:

Accepted Answer

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. 
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.

Question 14

Assertions about account balances at the period end include:

Accepted Answer

A) existence, completeness, and accuracy. 
B) existence, completeness, and classification. 
C) existence, rights and obligations, and completeness. 
D) existence, rights and obligations, and classification. 
A) existence, completeness, and accuracy. 
B) existence, completeness, and classification. 
C) existence, rights and obligations, and completeness. 
D) existence, rights and obligations, and classification.

Question 15

Describe three categories of expenses outlined in FASB Concept Statement No. 5.

Accepted Answer

1. The first type of expense is a produc

Question 16

A voucher:

Accepted Answer

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. 
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.

Question 17

Which of the following tests of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?

Accepted Answer

A) Test a sample of purchase requisitions for proper authorization. 
B) Obtain selected vendors' statements and reconcile to vendor accounts. 
C) Obtain listing of accounts payable and compare total to general ledger. 
D) Review results of confirmations of selected accounts payable. 
A) Test a sample of purchase requisitions for proper authorization. 
B) Obtain selected vendors' statements and reconcile to vendor accounts. 
C) Obtain listing of accounts payable and compare total to general ledger. 
D) Review results of confirmations of selected accounts payable.

Question 18

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

Accepted Answer

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) For cash payments occurring after the balance sheet date, examine the date on the associated receiving report or vendor invoice to determine if it relates to the current audit period. 
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) For cash payments occurring after the balance sheet date, examine the date on the associated receiving report or vendor invoice to determine if it relates to the current audit period.

Question 19

Tests of controls for the occurrence assertion for purchases include all of the following except:

Accepted Answer

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. 
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.

Question 20

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

Accepted Answer

A) True 
 B)False

A debit memo:

The authority to accept incoming goods in receiving should be based on a(n):

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

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

Substantive procedures to examine the cutoff assertion for accounts payable include:

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?

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the checks also:

The accounts payable department receives the purchase order form to accomplish all of the following except to:

Match the test of controls described below to the appropriate assertion it is used to test. -Review monthly bank reconciliations

Purchase cutoff procedures should be designed to test whether or not all inventory:

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:

Assertions about account balances at the period end include:

Describe three categories of expenses outlined in FASB Concept Statement No. 5.

A voucher:

Which of the following tests of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?

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

Tests of controls for the occurrence assertion for purchases include all of the following except:

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

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 11: Auditing the Purchasing Process

A debit memo:

The authority to accept incoming goods in receiving should be based on a(n):

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

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

Substantive procedures to examine the cutoff assertion for accounts payable include:

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?

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the checks also:

The accounts payable department receives the purchase order form to accomplish all of the following except to:

Match the test of controls described below to the appropriate assertion it is used to test. -Review monthly bank reconciliations

Purchase cutoff procedures should be designed to test whether or not all inventory:

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:

Assertions about account balances at the period end include:

Describe three categories of expenses outlined in FASB Concept Statement No. 5.

A voucher:

Which of the following tests of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?

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

Tests of controls for the occurrence assertion for purchases include all of the following except:

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

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters