Question 1

In the course of your audit over the acquisitions cycle you need to determine whether the client billings from vendors were received by the client. You have decided to perform a sample test. The population for the sample would be comprised of:

Accepted Answer

A)  Vendor Invoices. 
B)  Receiving reports. 
C)  Cash Disbursements. 
D)  Accounts Payable Subsidiary Ledger for Vendors.

Question 2

In searching for unrecorded liabilities the purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to:

Accepted Answer

A)  uncover liabilities on the balance sheet which should not have been recorded until a subsequent period. 
B)  find the documentation relating to a cash disbursement. 
C)  uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date. 
D)  uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.

Question 3

Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of:

Accepted Answer

A)  vendors' monthly statements. 
B)  individual vendors' invoices. 
C)  the accounts payable account in the general ledger. 
D)  dunning letters.

Question 4

When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the:

Accepted Answer

A)  tests of controls. 
B)  tests of controls and tests of transactions. 
C)  tests of details of balances. 
D)  analytical procedures and tests of controls.

Question 5

Discuss the key internal controls that should be present in the processing purchase orders function in the acquisitions and payment cycle.

Accepted Answer

The answer of Discuss the key internal controls that should...

Question 6

Cutoff procedures for inventory purchased should be designed by companies to assure the company that:

Accepted Answer

A)  inventory owned by the company has been received. 
B)  inventory included in the year end inventory count has been paid. 
C)  inventory received before year end was recorded before year end. 
D)  inventory was correctly valued at year end.

Question 7

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.

Question 8

Discuss each of the four business functions that comprise the acquisition and payment cycle.

Accepted Answer

The answer of Discuss each of the four business functions...

Question 9

When performing tests of controls or substantive tests of transactions for acquisitions, vendors' invoices are more useful than vendors' statements.

Accepted Answer

A) True 
 B)False

Question 10

An auditor is gathering evidence on the completeness assertion. To do so she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all:

Accepted Answer

A)  Vendor Invoices 
B)  Purchase Orders 
C)  Receiving Reports 
D)  Cash Disbursements for Accounts Payables

Question 11

The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of:

Accepted Answer

A)  occurrence. 
B)  completeness. 
C)  accuracy. 
D)  posting and summarization.

Question 12

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.

Question 13

The extent of a search for unrecorded liabilities largely depends on:

Accepted Answer

A)  materiality and inherent risk. 
B)  materiality and control risk. 
C)  materiality only. 
D)  inherent risk only.

Question 14

The auditor gets highly reliable evidence about individual transactions by examining:

Accepted Answer

A)  vendors' invoices. 
B)  vendors' statements. 
C)  confirmations of accounts payable balances. 
D)  detailed inventory counting instructions.

Question 15

The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of:

Accepted Answer

A)  accuracy. 
B)  existence. 
C)  completeness. 
D)  posting and summarization.

Question 16

You are performing an audit of Hawk Company. In evaluating the accounts payable balance you are concerned with the completeness assertion. Which of the following audit procedures best satisfy your concern?

Accepted Answer

A)  send confirmations to only vendors with large balances 
B)  send confirmations to vendors with large, active, zero balance accounts and a representative sample of all others 
C)  send confirmations to vendors chosen from sample stratified by the dollar balance 
D)  send confirmations to all vendors

Question 17

Match seven of the terms for documents and records (a-m) used in the acquisitions and cash disbursement cycle with the descriptions provided below (1-7):
a. Purchase requisition
b. Purchase order
c. Receiving report
d. Acquisitions journal
e. Summary acquisitions report
f. Vendor's invoice
g. Debit memo
h. Voucher
i. Accounts payable master file
j. Accounts payable trial balance
k. Vendor's statement
l. Check
m. Cash disbursements journal
________ 1. A document indicating a reduction in the amount owed to a vendor because of returned goods or an allowance granted.
________ 2. A document that specifies the details of an acquisition transaction and amount of money owed to the vendor for an acquisition.
________ 3. A document prepared by the purchasing department indicating the description, quantity, and related information for goods and services that the company intends to purchase.
________ 4. A listing of the amount owed to each vendor at a point in time.
________ 5. A document used to establish a formal means of recording and controlling acquisitions; it includes a cover sheet and a package of relevant documents.
________ 6. A document used to request goods and services by an authorized employee.
________ 7. The listing or report that includes all cash payments for a given period.

Accepted Answer

The answer of Match seven of the terms for documents...

Question 18

Describe the audit procedures typically used to test for out-of-period liabilities (also referred to as the search for unrecorded accounts payable).

Accepted Answer

The answer of Describe the audit procedures typically used to...

Question 19

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.

Question 20

What typically initiates the acquisitions and payment cycle?

Accepted Answer

A)  issuance of a purchase requisition or request for purchase of goods/services 
B)  issuance of payment to vendor 
C)  approval of a new vendor 
D)  purchase requisition

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