Question 1

An auditor has been assigned to perform tests of controls for a client's cash disbursement system. Client files are kept electronically with no paper audit trail. In this case the auditor would need to rely on which of the following audit procedures?

Accepted Answer

A)  Analytical procedures and Inquiry 
B)  Confirmations and Inquiry 
C)  Observation and Inquiry 
D)  Reperformance and Inquiry

Question 2

A written purchase order is a contractual document that is:

Accepted Answer

A)  an offer to buy. 
B)  not enforceable if it is not in writing. 
C)  a binding agreement between purchaser and vendor. 
D)  an acceptance of a vendor's catalog offer to sell.

Question 3

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?

Accepted Answer

A)  Count goods upon receipt in storeroom. 
B)  Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department. 
C)  Compare goods received with goods requisitioned in receiving department. 
D)  Verify vouchers for accuracy and approval in internal audit department.

Question 4

The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:

Accepted Answer

A)  Accounts payable master file. 
B)  Cash disbursements file. 
C)  Acquisitions transaction file. 
D)  Purchase approval file.

Question 5

Discuss the key internal controls that should be present in the "recognizing the liability" function in the acquisitions and payment cycle.

Accepted Answer

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

Question 6

The internal control "Vouchers are prenumbered and accounted for" relates most closely to the occurrence objective for acquisitions.

Accepted Answer

A) True 
 B)False

Question 7

A company's internal control procedures over the acquisition cycle should prevent the preparation of a voucher for goods that have not yet been received. Which of the following is the best procedure to assure vouchers are not prepared for goods not received?

Accepted Answer

A)  purchase order and vendor invoice are matched to the receiving report 
B)  compare goods received with goods ordered 
C)  perform sample test counts of items when received 
D)  compare the requisition for goods with the purchase order

Question 8

A company failed to record an acquisition of merchandise and its related liability, but the merchandise was included in ending inventory. The effect on the financial statements was to:

Accepted Answer

A)  understate both assets and liabilities. 
B)  understate net income and owners' equity. 
C)  understate assets and owners' equity. 
D)  understate liabilities, and overstate both net income and owners' equity.

Question 9

Vendors' statements and vendors' invoices are both relatively reliable evidence because they:

Accepted Answer

A)  come directly to the auditor without being in client's possession. 
B)  originate from a third party. 
C)  validate the effectiveness of the control system. 
D)  are compared to and reconciled with sales invoices.

Question 10

Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.

Accepted Answer

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

Question 11

The audit procedure "Examine canceled check for authorized signature, proper endorsement, and cancellation by the bank" is used to test the occurrence objective for cash disbursements.

Accepted Answer

A) True 
 B)False

Question 12

Receiving reports are normally only used to document the receipt of goods and are not used to document the receipt of services.

Accepted Answer

A) True 
 B)False

Question 13

In an examination of vendor statements or vendor confirmations when doing substantive tests of balances the auditor needs to perform the following:

Accepted Answer

A)  reconciliation with the accounts payable master file. 
B)  reconciliation with vendor invoices. 
C)  reconciliation with purchase orders. 
D)  reconciliation with receiving reports.

Question 14

One type of audit procedure the auditor uses to test accounts payable is a substantive analytical procedure. Describe why the auditor uses substantive analytical procedures for accounts payable and provide an example.

Accepted Answer

The answer of One type of audit procedure the auditor...

Question 15

To test for cutoff errors which overstate liabilities, the auditor should trace, to vendors' invoices, the receiving reports issued:

Accepted Answer

A)  after year-end. 
B)  before year-end. 
C)  the last day of the fiscal year. 
D)  both before and after year-end.

Question 16

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. A control procedure that should have prevented this duplicate payment is:

Accepted Answer

A)  attachment of the receiving report to the disbursement report. 
B)  prenumbering of disbursement vouchers. 
C)  use of a limit or reasonableness test. 
D)  prenumbering of receiving reports.

Question 17

Auditors examine supporting documentation for cash disbursements subsequent to the balance sheet date in order to determine whether the cash disbursement was for a current period liability.
Describe at least two audit procedures the auditor would perform to provide evidence that the cash disbursement was made for a current period liability.

Accepted Answer

The answer of Auditors examine supporting documentation for cash disbursements...

Question 18

The acquisition and payment cycle consists of one class of transactions.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is most reliable for verifying the correct balance of accounts payable?

Accepted Answer

A)  Vendors' invoices 
B)  Vendors' statements 
C)  Confirmations 
D)  Bills of lading

Question 20

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the:

Accepted Answer

A)  confirmation of payables. 
B)  tests on long-term liabilities. 
C)  observation of inventory. 
D)  cash count.

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

An auditor has been assigned to perform tests of controls for a client's cash disbursement system. Client files are kept electronically with no paper audit trail. In this case the auditor would need to rely on which of the following audit procedures?

A written purchase order is a contractual document that is:

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?

The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:

Discuss the key internal controls that should be present in the "recognizing the liability" function in the acquisitions and payment cycle.

The internal control "Vouchers are prenumbered and accounted for" relates most closely to the occurrence objective for acquisitions.

A company's internal control procedures over the acquisition cycle should prevent the preparation of a voucher for goods that have not yet been received. Which of the following is the best procedure to assure vouchers are not prepared for goods not received?

A company failed to record an acquisition of merchandise and its related liability, but the merchandise was included in ending inventory. The effect on the financial statements was to:

Vendors' statements and vendors' invoices are both relatively reliable evidence because they:

Discuss the key internal controls that should be present in the receiving goods and services function in the acquisitions and payment cycle.

The audit procedure "Examine canceled check for authorized signature, proper endorsement, and cancellation by the bank" is used to test the occurrence objective for cash disbursements.

Receiving reports are normally only used to document the receipt of goods and are not used to document the receipt of services.

In an examination of vendor statements or vendor confirmations when doing substantive tests of balances the auditor needs to perform the following:

One type of audit procedure the auditor uses to test accounts payable is a substantive analytical procedure. Describe why the auditor uses substantive analytical procedures for accounts payable and provide an example.

To test for cutoff errors which overstate liabilities, the auditor should trace, to vendors' invoices, the receiving reports issued:

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. A control procedure that should have prevented this duplicate payment is:

The acquisition and payment cycle consists of one class of transactions.

Which of the following is most reliable for verifying the correct balance of accounts payable?

In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the: