Exam 12: The Purchases, Payables, and Payments Process

Information gathering about the control structure often begins with an internal control questionnaire.

To determine whether accounts payable is complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all ________.

The statement that "all purchase orders must be supported by properly approved purchase requisitions" is a specific example of which general objective?

Audit procedures used in the observation of a client's physical inventory count are designed primarily to ________.

Identify situations when the auditor should use accounts payable confirmations and discuss whether they are required to use them.

Auditors must place more emphasis on the existence and rights assertions when obtaining evidence about accounts payable.

Comparing the results of a physical inventory count to the perpetual inventory records is considered a part of the recording function.

In "Amortize the 'Drum' Slowly", Candid Production overvalued net assets by taking too little amortization. Which of the following was the lesson for the auditors in this case?

A credit balance in a client's inventory records would suggest failure to record purchases.

An internal control questionnaire for purchases and accounts payable could include the following questions. Match the question to the appropriate control objective and place the identifying letter in the space provided. A: Environment B: Validity C: Completeness D: Authorization E. Accuracy F. Classification G: Proper period ____ 1. Are receiving reports pre-numbered and accounted for? ____ 2. Are all purchases orders supported by properly approved purchase requisitions? ____ 3. Are vendors' invoices listed immediately upon receipt? ____ 4. Are vendors' invoices matched against purchase orders and receiving reports before a liability is recorded? ____ 5. Is the purchasing department independent of the accounting, receiving, and shipping departments? ____ 6. Are vendors' invoices checked against purchase orders and receiving reports for quantities, prices, and terms? ____ 7. Does the accounting procedures manual require that transactions be recorded on the date that goods and services are received? ____ 8. Are all goods returned to vendors supported by properly approved shipping documents? ____ 9. Is the chart of accounts adequate? ____ 10. Are vouchers and attached documents cancelled after being recorded?

Quantities recorded during the physical count of inventories are greater than the quantities in the perpetual records. This could be the result of a failure to record ________.

When the auditor selects a sample of inventory items from the perpetual inventory master file then searches out these items in the inventory warehouse, the auditor is collecting evidence to support which assertion?

When auditors trace the test counts they took at the physical inventory count to the final inventory summary, they are gathering evidence on the completeness assertion.

When performing procedures to search for unrecorded liabilities, the auditor can obtain several sources of audit evidence, for example, documents, files, and enquiries of management and clerical personnel. Required: List at least five, but no more than eight, sources of audit evidence that could be accumulated in the search for unrecorded liabilities. (Do not write procedures or reasons for using the sources.)

Identify the accounts payable audit objectives that the auditors must consider in determining the audit procedures to be performed.

Which of the following situations indicates a potential material weakness in internal control over acquisitions and expenditures?

When confirming accounts payable, emphasis should be put on what kind of accounts?

The requirement that "perpetual inventory records must be updated as of the date goods are received" is an example of a control that satisfies the "proper period" internal control objective.

Rather than counting the entire inventory at year-end, a company may make periodic, or cycle counts, of selected inventory items at various times during the year. Which of the following is necessary if the auditor plans to observe inventories at interim dates?

A client maintains perpetual inventory records in both quantities and dollars. If the assessed level of control risk is high, an auditor would probably ________.