Question 1

List the four business functions in the acquisition and payment cycle.

Accepted Answer

1.Processing purchase orders
2.Receiving goods and services
3.Recognizing the liability
4.Processing and recording cash disbursements

Question 2

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed.If the acquisition is included in accounts payable and purchases,but excluded from inventory,the result:

Accepted Answer

A)  is an understatement of net earnings. 
B)  is an overstatement of net earnings. 
C)  is an overstatement of working capital. 
D)  is an overstatement of owner's equity. 
A)  is an understatement of net earnings. 
B)  is an overstatement of net earnings. 
C)  is an overstatement of working capital. 
D)  is an overstatement of owner's equity. A

Question 3

Absent disputed amounts and minor timing differences,the vendor's statements should reconcile to the:

Accepted Answer

A)  acquisition journal. 
B)  accounts payable master file. 
C)  cash disbursements amount for purchases. 
D)  vouchers payable amount for vendors. 
A)  acquisition journal. 
B)  accounts payable master file. 
C)  cash disbursements amount for purchases. 
D)  vouchers payable amount for vendors. B

Question 4

Auditors need to distinguish between accounts payable and accrued liabilities in designing the appropriate control and substantive tests.A liability is properly accounted for as an account payable if:

Accepted Answer

A)  the amount is known and owed as of the balance sheet date. 
B)  the amount can be estimated and is owed at the balance sheet date. 
C)  the amount is known at the balance sheet date and owed by the end of the next fiscal year. 
D)  the amount is estimated and owed within 90 days of the balance sheet date. 
A)  the amount is known and owed as of the balance sheet date. 
B)  the amount can be estimated and is owed at the balance sheet date. 
C)  the amount is known at the balance sheet date and owed by the end of the next fiscal year. 
D)  the amount is estimated and owed within 90 days of the balance sheet date.

Question 5

Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.

Accepted Answer

For good internal control over the recei

Question 6

A substantive test of transactions commonly used to test the completeness objective for acquisitions is "Trace from a file of receiving reports to the acquisitions journal."

Accepted Answer

A) True 
 B)False

Question 7

Describe purchase requisitions and purchase orders.What is a key difference between the two documents?

Accepted Answer

Purchase requisitions represent requests

Question 8

When testing the controls for the completeness transaction-related audit objectives:

Accepted Answer

A)  failure to record the acquisition of goods or services will generally understate net income. 
B)  failure to record the acquisition of goods or services has no impact on the balance sheet. 
C)  it is generally easy for the auditor to determine whether unrecorded transactions exist. 
D)  the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls. 
A)  failure to record the acquisition of goods or services will generally understate net income. 
B)  failure to record the acquisition of goods or services has no impact on the balance sheet. 
C)  it is generally easy for the auditor to determine whether unrecorded transactions exist. 
D)  the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls.

Question 9

An auditor performs a test to determine whether all merchandise for which the client was billed was received.The population for this test consists of all:

Accepted Answer

A)  merchandise received. 
B)  vendors' invoices. 
C)  canceled checks. 
D)  receiving reports. 
A)  merchandise received. 
B)  vendors' invoices. 
C)  canceled checks. 
D)  receiving reports.

Question 10

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?

Accepted Answer

A)  Internal accounting control over accounts payable is adequate, and there is sufficient evidence on hand to minimize the risk of a material misstatement. 
B)  Confirmation response is expected to be favorable, and accounts payable balances are of immaterial amounts. 
C)  Creditor statements are not available and internal control over payables is unsatisfactory. 
D)  The majority of accounts payable balances are with associated companies. 
A)  Internal accounting control over accounts payable is adequate, and there is sufficient evidence on hand to minimize the risk of a material misstatement. 
B)  Confirmation response is expected to be favorable, and accounts payable balances are of immaterial amounts. 
C)  Creditor statements are not available and internal control over payables is unsatisfactory. 
D)  The majority of accounts payable balances are with associated companies.

Question 11

You are performing the audit of Jenkins and Company.Your tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively.This would normally allow you to:

Accepted Answer

A)  eliminate the need for substantive testing of balances for accounts payable. 
B)  reduce the need for substantive testing of balances for accounts payable. 
C)  reduce control tests in other transactions cycles. 
D)  increase the need for substantive testing of balances for accounts payable. 
A)  eliminate the need for substantive testing of balances for accounts payable. 
B)  reduce the need for substantive testing of balances for accounts payable. 
C)  reduce control tests in other transactions cycles. 
D)  increase the need for substantive testing of balances for accounts payable.

Question 12

Significant audit efficiencies can be achieved on many audits when controls are operating effectively.

Accepted Answer

A) True 
 B)False

Question 13

Authorization for accepting goods in the receiving department should be based on the:

Accepted Answer

A)  vendor invoice. 
B)  requisition request. 
C)  purchase order from the purchasing department. 
D)  vendor statement. 
A)  vendor invoice. 
B)  requisition request. 
C)  purchase order from the purchasing department. 
D)  vendor statement.

Question 14

Describe the methodology for designing tests of details of balances for accounts payable.

Accepted Answer

The methodology for designing tests of a

Question 15

The acquisition and payment cycle typically begins with the initiation of purchase requisition for goods and services from an authorized individual.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is most reliable for verifying the correct balance of accounts payable?

Accepted Answer

A)  Vendors' invoices 
B)  Vendors' statements 
C)  Confirmations 
D)  Bills of lading 
A)  Vendors' invoices 
B)  Vendors' statements 
C)  Confirmations 
D)  Bills of lading

Question 17

The overall objective in the audit of the acquisition and payment cycle is:

Accepted Answer

A)  to ensure the reliability of the affected accounts. 
B)  to ensure the accuracy of the affected accounts. 
C)  to evaluate whether the affected accounts are fairly presented in accordance with accounting standards. 
D)  to evaluate whether fraudulent payments were made. 
A)  to ensure the reliability of the affected accounts. 
B)  to ensure the accuracy of the affected accounts. 
C)  to evaluate whether the affected accounts are fairly presented in accordance with accounting standards. 
D)  to evaluate whether fraudulent payments were made.

Question 18

________ is a balance-related audit objective that is not applicable to liabilities.

Accepted Answer

A)  Existence 
B)  Accuracy 
C)  Detail tie-in 
D)  Realizable value 
A)  Existence 
B)  Accuracy 
C)  Detail tie-in 
D)  Realizable value

Question 19

The cash account is not part of the acquisitions and payment cycle.

Accepted Answer

A) True 
 B)False

Question 20

When assets are being verified,auditors focus much of their attention on making sure that the accounts are not overstated.Alternatively,auditors focus their efforts on understatement when auditing liabilities.What is the primary reason for this difference in focus?

Accepted Answer

A)  Auditors' legal liability 
B)  GAAP 
C)  GAAS requirements 
D)  All of the above 
A)  Auditors' legal liability 
B)  GAAP 
C)  GAAS requirements 
D)  All of the above

Exam 18: Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

List the four business functions in the acquisition and payment cycle.

An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed.If the acquisition is included in accounts payable and purchases,but excluded from inventory,the result:

Absent disputed amounts and minor timing differences,the vendor's statements should reconcile to the:

Auditors need to distinguish between accounts payable and accrued liabilities in designing the appropriate control and substantive tests.A liability is properly accounted for as an account payable if:

Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.

A substantive test of transactions commonly used to test the completeness objective for acquisitions is "Trace from a file of receiving reports to the acquisitions journal."

Describe purchase requisitions and purchase orders.What is a key difference between the two documents?

When testing the controls for the completeness transaction-related audit objectives:

An auditor performs a test to determine whether all merchandise for which the client was billed was received.The population for this test consists of all:

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?

You are performing the audit of Jenkins and Company.Your tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively.This would normally allow you to:

Significant audit efficiencies can be achieved on many audits when controls are operating effectively.

Authorization for accepting goods in the receiving department should be based on the:

Describe the methodology for designing tests of details of balances for accounts payable.

The acquisition and payment cycle typically begins with the initiation of purchase requisition for goods and services from an authorized individual.

Which of the following is most reliable for verifying the correct balance of accounts payable?

The overall objective in the audit of the acquisition and payment cycle is:

________ is a balance-related audit objective that is not applicable to liabilities.

The cash account is not part of the acquisitions and payment cycle.

When assets are being verified,auditors focus much of their attention on making sure that the accounts are not overstated.Alternatively,auditors focus their efforts on understatement when auditing liabilities.What is the primary reason for this difference in focus?

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details of Balances

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Inventory and Warehousing Cycle

Audit of the Payroll and Personnel Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash and Financial Instruments

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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