Exam 12: The Purchases, Payables, and Payments Process

Brown CPA was auditing her client Red Manufacturing Company. She selected a sample of inventory item recorded as issues in the perpetual records and vouched them to production requisitions. Brown's audit procedure was intended to satisfy which control objective?

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?

Limiting access to blank documents, such as purchase orders, is part of the custody duty in the acquisition and expenditure cycle.

"Observe if personnel in the purchasing department are following company policies" is an audit procedure intended to test which control objective?

Which control objective is associated with observing the inventory record-keeping personnel as they perform their work?

If a client uses the cycle method of counting inventory and never takes "wall to wall" inventory on a single date, what must the auditor do in order to avoid requesting the client to take a full inventory count?

Which of the following internal control procedures is most likely to be used in order to maintain accurate inventory records?

Auditors can perform detail tests of control audit procedures to determine whether the client throughout the period of intended reliance is actually performing controls that are said to be in place and operating. What two characteristics must a detail test of controls audit procedure have in order to be successful?

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

Explain why auditors must put greater emphasis on the completeness assertion when auditing accounts payable. Contrast this with the audit of assets.

The accounts payable trial balance should not include vendors with nonzero balances.

An auditor wants to perform tests of controls on a client's cash disbursement procedures. If the control procedures leave no audit trail or documentary evidence, the auditor is most likely to test the procedures by ________.

The accounts payable trial balance is a list of payable amounts by vendor. This total should equal the control account total in the general ledger.

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

If the auditor selects a sample of open accounts payable and vouches the details to supporting purchase documents, the auditor is testing the objective of validity.

This question requires knowledge about specific account balance assertions, general audit procedures, and trade accounts payable. You are assigned to audit trade accounts payable at Green Corporation, whose business is wholesale and retail trade. Green purchases products from 1,000-2,000 manufacturers and sells the products to its retail and wholesale customers. The general ledger shows a trade accounts payable balance as of the balance sheet date in the amount of $42 million (the balance comprises 70% of current liabilities, 50% of total liabilities, and 35% of total liabilities and shareholders' equity). Green's accountants post summary entries from the purchases journal and from the cash disbursements journal to the accounts payable control account each month. The accounts payable manager gave you a detailed trial balance that lists all the recorded, unpaid invoices (recording date, vendor name, vendor invoice number, invoice date, and amount) subtotalled by vendor. Other members of the audit team have already decided to assess control risk at maximum for accounts payable. The engagement manager gave you last year's audit working papers and told you not to use the audit program from last year because it was no longer appropriate. The first part of your assignment is to write the audit program for the audit of Green's trade accounts payable. Required: For each of the general assertions EXISTENCE, COMPLETENESS, and VALUATION, write two or more specific audit procedures designed to produce appropriate evidence about Green's trade accounts payable balance.

Mary Monitor CPA noted that ABC Co. Ltd. received goods prior to year-end and included them in the physical inventory but did not record them in the accounting records. In this case, which of the following adjustments should be made?

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

An auditor should not be concerned if a cross-reference of vendor addresses with employee addresses reveals that there are matches.

Audit procedures to test controls over inventory records could include the procedures listed below. Match each of the procedures numbered 1 through 5 to the appropriate control objective (A through F) and place the identifying letter in the space provided. A: Validity B: Completeness C: Authorization D: Accuracy E: Classification F: Proper period ____ 1. Account for the integrity of the numerical sequence of shipping documents used to relieve stock from the inventory records. ____ 2. Examine material requisitions for evidence of approval by the production supervisor. ____ 3. Review the reconciliation of the daily summary of goods shipped per shipping bills to the daily summary of stock removed from inventory per the perpetual inventory records. ____ 4. Trace quantities shipped per shipping bills to the perpetual inventory records. ____ 5. Review material requisitions for evidence of internal verification of general ledger account numbers.