Deck 14: Accounts Payable and Other Liabilities

Question 1

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

A)Scan the sales journal for sequential and unusual entries.
B)Examine shipping documents for matching sales invoices.
C)Compare the accounts receivable ledger to daily sales summaries.
D)Inspect unused sales invoices for consecutive prenumbering.

Answer 1

B

Question 2

When an auditor finds a debit to accounts payable,which of the following accounts is most likely to be credited?

A)Accounts Receivable.
B)Accrued liabilities.
C)Cash.
D)Cost of goods sold.

Answer 2

C

Question 3

Confirmation of accounts payable is a required generally accepted auditing procedure.

Answer 3

False

Question 4

Assume that the auditors are concerned about disbursement transactions that have been recorded for improper amounts.Which procedure(s)would possibly identify these transactions? $\begin{array}{|l|c|c|}\hline \text { Item } & \begin{array}{c}\text { Trace from source } \\\text { documents to journals }\end{array} & \begin{array}{c}\text { Vouch from journal } \\\text { to source documents }\end{array} \\\hline \text { A } & \text { No } & \text { No } \\\hline \text { B. } & \text { No } & \text { Yes } \\\hline \text { C. } & \text { Yes } & \text { No } \\\hline \text { D. } & \text { Yes } & \text { Yes } \\\hline\end{array}$

A)Option A
B)Option B
C)Option C
D)Option D

Question 5

For effective internal control over accounts payable,the purchasing department should approve invoices for payment.

Question 6

An entity's internal control requires for every check request that there be an approved voucher,supported by a prenumbered purchase order,and a prenumbered receiving report.To determine whether checks are being issued for unauthorized expenditures,an auditor most likely would select for testing from the population of:

A)Purchase orders.
B)Canceled checks.
C)Receiving reports.
D)Approved vouchers.

Question 7

Accounts payable from an officer should be classified separately from other accounts payable.

Question 8

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

A)Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.
B)Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.
C)Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
D)Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

Question 9

Accounts payable generally present the auditors with difficult valuation problems.

Question 10

Overstatement of financial results can involve failure to record a transaction.

Question 11

Information regarding the proper cutoff of accounts payable is generally obtained in conjunction with the audit of inventories.

Question 12

Which of the following is an example of an accrued liability?

A)Accounts payable.
B)Notes payable.
C)Prepaid insurance.
D)Interest payable.

Question 13

The primary objective of the auditors' examination of accounts payable is to determine whether payments are made on a timely basis.

Question 14

Auditors generally consider the evidence regarding accounts payable in the client's possession as less reliable than that for accounts receivable.

Question 15

A client recorded a payable for a large purchase twice.Which of the following controls would be most likely to detect this error in a timely and efficient manner?

A)Footing the purchases journal.
B)Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
C)Tracing totals from the purchases journal to the ledger accounts.
D)Sending written quarterly confirmations to all vendors.

Question 16

The confirmation of existing accounts payable proves the completeness of recorded accounts payable.

Question 17

A likely analytical procedure to test the accuracy of purchase discounts would be to compute the ratio of cash discounts earned to:

A)Accounts payable.
B)Notes payable.
C)Purchases.
D)Sales discounts.

Question 18

It is less important to maintain effective internal control over accounts payable as it is to maintain effective internal control over accounts receivable.

Question 19

An auditor wishes to perform tests of controls on a client's cash disbursements relating to accounts payable.If the control procedures leave no audit trail of documentary evidence,the auditor most likely will test the procedures by:

A)Confirmation and observation.
B)Observation and inquiry.
C)Analytical procedures and confirmation.
D)Inquiry and analytical procedures.

Question 20

Which of the following best describes a voucher prepared under good internal control?

A)A document prepared by Stores that indicates amount to be purchased.
B)A document prepared by Receiving that indicates the quantity received and approves payment.
C)A document prepared by Accounts Payable authorizing a cash disbursement.
D)A document received by Purchasing,from a supplier,indicating quantity of goods purchased and amount due.

Question 21

Which of the following is a control procedure that is usually applied to accounts payable?

A)Periodic confirmation of accounts payable.
B)Mailing statements to vendors detailing their account.
C)Periodic aging of accounts payable.
D)Matching invoices with receiving documents before disbursements are authorized.

Question 22

The assertion most directly addressed when performing the search for unrecorded liabilities is:

A)Completeness.
B)Existence.
C)Presentation.
D)Rights.

Question 23

Auditors should be aware that a voucher system may result in which of the following at year-end:

A)Understatement of liabilities.
B)Overstatement of assets.
C)Understatement of owners' equity.
D)Overstatement of expenses.

Question 24

For good internal control,a copy of a receiving report should be sent to all of the following departments except:

A)Accounts payable.
B)Purchasing.
C)Stores.
D)Shipping.

Question 25

Accrued liabilities generally differ from accounts payable in that accrued liabilities:

A)Are often based on estimates.
B)Are usually confirmed at year-end.
C)Depend upon the existence of a transaction for original recording of the account.
D)Are never included in cost of goods sold.

Question 26

Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable?

A)Footing the list of accounts payable.
B)Examining underlying documentation for cash disbursements in the period after year-end.
C)Tracing shipping reports issued on or before year-end to related customer purchase orders and invoices.
D)Tracing shipping reports after year-end to related customer purchase orders and invoices.

Question 27

Which of the following best describes the specific accounts payable that are selected for confirmation?

A)Accounts with large balances.
B)Accounts with zero balances.
C)Accounts with a large amount of activity regardless of their balance.
D)Accounts for which vendor statements are available.

Question 28

When the auditors discover an understatement of liabilities,they would most likely also expect to find an:

A)Understatement of assets.
B)Understatement of owners' equity.
C)Overstatement of expenses.
D)Understatement of revenues.

Question 29

Which of the following is the best control procedure to prevent the payment of an invoice twice?

A)Review of supporting documentation by the person signing the check.
B)Requiring dual signatures on checks.
C)Use of a check protector.
D)Reconciliation of vendor statements to accounts payable.

Question 30

Which of the following statements is correct regarding accounts payable and the auditor's procedures?

A)Because it can be difficult to discover a transaction that has not been recorded,the audit objective of completeness drives many of the substantive procedures applied to these balances.
B)A judgment whether an unrecorded payable should be recorded before the financial statements are prepared depends entirely upon the source of the payable.
C)The confirmation of accounts payable selected from the year-end trial balance of such accounts is most effective in discovering unrecorded liabilities.
D)Unrecorded payables are often discovered through examining vouchers payable entered into the voucher register prior to the balance sheet date.

Question 31

Which of the following manipulations would understate accounts payable on the financial statements?

A)Overstatement of purchases.
B)Closing the cash disbursements journal prior to year-end.
C)Leaving the cash receipts journal open after year-end.
D)Omission of expenses.

Question 32

Which of the following assertions is of principle concern to the auditors in the examination of accounts payable?

A)Existence.
B)Completeness.
C)Valuation.
D)Authorization.

Question 33

Most of the audit work on accounts payable is typically performed:

A)Before the balance sheet date.
B)At the balance sheet date in conjunction with inventory cutoff tests.
C)After the balance sheet date.
D)Simultaneously with the audit of accrued liabilities.

Question 34

Which statement is correct with respect to accounts payable confirmations?

A)The negative form is used in most circumstances.
B)Accounts with new suppliers are always confirmed.
C)They are a required auditing procedure.
D)They are more frequently used in situations in which some vendors don't send monthly statements.

Question 35

The confirmation of accounts payable is most closely associated with:

A)Assertion risk.
B)Detection risk.
C)Inherent risk.
D)Relative risk.

Question 36

The form typically used to confirm accounts payable:

A)Does not require a response from the vendor.
B)Confirms the balance recorded by the client at year-end.
C)Requires the vendor to indicate the amount of the payable.
D)Is the same as the form used to confirm accounts receivable.

Question 37

The auditors' search for unrecorded liabilities is completed:

A)During an interim period.
B)At the balance sheet date.
C)Subsequent to the balance sheet date.
D)At any time during the examination.

Question 38

Auditors may choose not to confirm accounts payable because:

A)Confirmation obtains evidence identical to that obtained by cutoff tests.
B)Other reliable external evidence to support the balances is likely to be available.
C)A reading of the corporate minutes reveals that confirmation is unnecessary.
D)The balances due will have changed between the year-end and the date of confirmation.

Question 39

Which of the following procedures for detecting unrecorded transactions at the client's December 31 year-end is least likely to result in discovery of an unrecorded year-end account payable?

A)Examination of invoices received after year-end.
B)Examination of vouchers payable entered in the January voucher register.
C)Examination of January receiving reports prepared for goods shipped FOB destination in December to the client.
D)Confirmation of year-end accounts payable.

Question 40

Which of the following best describes the auditors' approach to the audit of accrued liabilities?

A)Test computations.
B)Confirmation.
C)Observation.
D)A low planned assessed level of control risk.

Question 41

An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise.Which of the following procedures provides the greatest assurance that this control is operating effectively?

A)Select and examine vouchers and ascertain that the related canceled checks are dated no later than the vouchers.
B)Select and examine vouchers and ascertain that the related canceled checks are dated no earlier than the vouchers.
C)Select and examine canceled checks and ascertain that the related vouchers are dated no earlier than the checks.
D)Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks.

Question 42

Which of the following audit procedures is least likely to detect an unrecorded liability?

A)Analysis and recomputation of interest expense.
B)Analysis and recomputation of depreciation expense.
C)Mailing of a cash confirmation form.
D)Reading of the minutes of meetings of the board of directors.

Question 43

With properly designed internal control,the same employee should not be permitted to:

A)Sign checks and cancel supporting documents.
B)Receive merchandise and prepare a receiving report.
C)Prepare disbursement vouchers and sign checks.
D)Initiate a request to order merchandise and approve merchandise received.

Question 44

The auditor will most likely perform extensive tests for possible understatement of:

A)Revenues.
B)Assets.
C)Liabilities.
D)Capital.

Question 45

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

A)Compare invoice price to purchase order price.
B)Ensure the purchase had been properly authorized.
C)Ensure the goods had been received by the party requesting the goods.
D)Compare quantity ordered to quantity purchased.

Question 46

Internal control over accounts payable is improved when:

A)Vendor statements are reconciled with the accounts payable ledger.
B)Informal bids are obtained.
C)Annual trial balance of accounts payable subsidiary ledgers is required.
D)Payment is made upon approval of the purchasing agent.

Question 47

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

A)Unpaid bills.
B)Shipping records.
C)Bills of lading.
D)Unmatched sales invoices.

Question 48

To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a separation of which of the following functions?

A)Cash disbursements and invoice verification.
B)Invoice verification and merchandise ordering.
C)Physical handling of merchandise received and preparation of receiving reports.
D)Check signing and cancellation of payment documentation.

Question 49

Based on the company and its environment,including its internal control,the auditors assessed the risk of material misstatements to the financial statements,whether due to error or fraud,and designed the nature,timing,and extent of further audit procedures to be performed.
As a result of conducting the above risk assessment procedures,the audit plan for year 2 includes the following changes from the audit plan for year 1.The company has a calendar year-end and operates only on weekdays.
In conducting the audit procedures for the search for unrecorded liabilities,the materiality/scope for this area was assessed by the auditors at $6,000.Adjustments are only recorded for items equal to,or exceeding materiality.The last day of fieldwork is estimated to be February 1,year 3.
For the items reflected in the following check register,which are not recorded in the accounts payable subsidiary ledger at December 31,year 2,determine if each potential liability is recorded in the proper accounting period and also determine the amount that should be journalized,if any.If no action is required,you must enter $0.
For each of the check numbers in the table below,select if any action or adjustment is required. If no action is required,put $0 in the amount column;if an adjustment is needed select the dollar amount.Each selection may be used once,more than once,or not at all.
Check Register

 

Question 50

Which of the following could most likely be performed efficiently with data analytics?

A)Confirmation of accounts payable.
B)Identification of payables from purchases of goods that do not have evidence of receipt of the goods.
C)Identification of unrecorded accounts payable.
D)Review of vendors' statements.

Question 51

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger.Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if:

A)There are usually invoices in an unmatched invoice file.
B)Vendors' requests for confirmation of receivables often go unanswered for several months until paid invoices can be reviewed.
C)Partial payments to vendors are continuously made in the ordinary course of business.
D)It is difficult to reconcile vendors' monthly statements.

Question 52

Operating control over check signing normally should be the responsibility of the:

A)Secretary.
B)Chief accountant.
C)Vice-president of marketing.
D)Treasurer.

Question 53

When the auditors select a sample from the vouchers payable register at the end of the period and trace them to underlying documents,the auditors are gathering evidence primarily to support that:

A)Recorded obligations were paid.
B)Incurred obligations were recorded in the correct period.
C)Recorded obligations occurred prior to year-end.
D)Cash disbursements were recorded as incurred obligation.

Question 54

A major concern of the auditors is obtaining evidence about the completeness of recorded accounts payable.
a.Describe the reason that the auditors are concerned with the completeness of accounts payable.
b.Describe three ways in which the auditors establish the completeness of accounts payable.

Question 55

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?

A)Examining reported purchase returns that appear too low.
B)Examining vendor statements for amounts not reported as purchases.
C)Search for customer-returned goods that were not reported as returns.
D)Reviewing bank transfers recorded as cash received from customers.

Question 56

The auditors may decide to confirm accounts payable on an audit engagement.
a.Describe two reasons why the confirmation of accounts payable is not a presumptively mandatory auditing procedure.
b.Describe the audit circumstances in which the auditors are likely to decide to confirm accounts payable.
c.Describe the types of accounts payable the auditors are likely to select for confirmation.

Question 57

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

A)Observation of inventory.
B)Review of internal control over cash disbursements.
C)Search for unrecorded liabilities.
D)Confirmation of receivables.