Exam 8: Acquisition and Expenditure Cycle

Which of the following client control activities is not usually performed in the vouchers payable (accounts payable)department?

A weakness in internal control over recording retirements of equipment may cause an auditor to

Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?

The emphasis is on the completeness assertion because financial statement users tend to be more concerned about understated expenses and liabilities than overstated.

Which of the following procedures is least likely to be performed before the balance-sheet date?

Julie works in accounts payable. Her job is to prepare the voucher package and submit the completed voucher to the treasurer’s office for payment. When the voucher is paid by the Treasurer’s department it is returned to Julie (without the check) for filing. The company receives invoices from Mona’s Office Supply. When Julie receives the voucher package back from the Treasurer, Julie scans the invoice from Mona’s Office Supply and changes the address so that a duplicate payment is sent to a Mail Boxes Etc. store where Julie rents a mail box under the name Mini’s Official Supplies. With the slightly altered invoice (no other changes are made), Julie submits the voucher package a second time. Julie also has a bank account with the name Mini’s Official Supplies. When Julie receives the check for Mona’s Office Supply, Julie deposits it in her Mini’s Official Supplies bank account and then used an ATM card to withdraw the cash. A) Define the internal control weakness that allowed the situation to exist – if any; B) One (and only one) specific internal controls that should be in place to prevent or detect the problem; and C) One (and only one) test of control audit procedure. D) One (and only one) substantive audit procedure that may detect the situation described. No credit will be given for generic controls (e.g. policies and procedures; separation of duties without specifics; discuss with management). Be specific Format your answer in the following manner Weakness: Control: Control Audit Procedure: Substantive Audit Procedure:

A liability for a long-term purchase contract should generally be recognized when

____________________________________ consist of (1)identification of data population for audit and (2)an expression of the action to be taken to produce relevant audit evidence. Reference: Question also found in study guide

A personnel file should establish the reality of a person's _______________________ and ____________________________. Reference: Question also found in study guide

Which of the following would not overstate current-period net income?

What evidence is appropriate to determine whether recorded purchase transactions are valid and the vendors charged the correct prices?

An audit plan for accounts payable would not include which of the following procedures?

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?

A CPA learns that his client has paid a vendor twice for the same shipment; once based upon the original invoice and once based upon the monthly statement sent from the vendor.A control procedure that should have prevented this duplicate payment is

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

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

Which of the following would detect the understatement of a purchase discount?

L.Curtis,a maintenance supervisor,submitted maintenance invoices from a phony repair company and received the checks at a post office box.This should have been prevented by

This question requires knowledge of specific account balance assertions,general audit procedures,and trade accounts payable. You are assigned to audit the accounts payable of Green Corporation whose business is wholesale and retail trade.The company purchases products from 1,002,000 manufacturers ("vendors")and sells the products to its retail and wholesale customers.The general ledger shows the Accounts Payable control balance as of the balance-sheet date in the amount of $42 million (which is 70 percent of current liabilities,50 percent of total liabilities,and 35 percent of total liabilities and owners' equity).Green's management accountants post the summary entries from the purchases journal and from the cash disbursements journal each month to the Accounts Payable control account.The accounts payable manager gave you a detailed trial balance that lists all recorded unpaid invoices (recording date,vendor name,vendor invoice number,invoice date,and amount)subtotaled by vendor. Other members of the audit team have already decided to assess control risk at the maximum for the accounts payable work.The engagement manager gave you last year's audit working papers but said the audit plan was missing (!).Thus,the first part of your assignment is to write the audit plan for audit of the Green Corporation trade accounts payable. Required: For each of the balance assertions (existence,completeness,and valuation or and allocation),write two or more specific audit procedures designed to produce evidence related to the accounts payable balance of $42 million. (Hints: [1] For each of the three balance assertions,think about a specific assertion before you write a procedure to gather evidence.[2] Write specific procedures as adaptations of the general audit procedures: recalculation,observation,confirmation,document examination,inquiry,scanning,analytical procedures.[3] Most procedures are two-part statements: "Select a sample of...[identify the population]...and "do something"...[specify an action].)

Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?