Deck 12: The Acquisition and Payments Cycle and Related Accounts: Purchases, Cash Disbursements and Other Related Activities in the Automotive Industry

Question 1

Manufacturers use purchase accounts; retailers use inventory accounts.

Answer 1

False

Question 2

Payment authorization only requires internal documents.

Answer 2

False

Question 3

A receiving report documents receipt of goods.

Answer 3

True

Question 4

A manufacturer uses raw materials, labor, and overhead to create a finished good.

Question 5

Pre-numbering purchase orders is a type of control.

Question 6

Cut-off determines the period in which the transaction is recorded.

Question 7

EDGAR is the name of the SEC database.

Question 8

A purchase requisition usually precedes a purchase order.

Question 9

Only payments made by paper check are posted in the cash disbursements journal.

Question 10

Dual purpose tests allow the auditor to perform the audit in an efficient manner.

Question 11

Segregation of duties is achieved in an electronic environment by limiting access to certain fields of a form.

Question 12

The receiving department uses information supplied by the purchasing department when receiving raw materials.

Question 13

All supporting documentation should be separated from the invoice to prevent duplicate payment.

Question 14

A debit memo is used by the supplier to increase the amount due.

Question 15

Authorization and cut-off are two additional assertions.

Question 16

SIC is used to classify companies into industries.

Question 17

The purchase requisition, purchase order, and supplier invoice comprise a payment support package.

Question 18

Blanket purchase orders usually are for an unlimited quantity.

Question 19

Just-in-time inventory is usually only employed by large manufacturers.

Question 20

Cash transactions should be tested prior to month end to allow for the receipt of appropriate evidence.

Question 21

GAAS allows auditors to use substantive analytical procedures to obtain audit evidence.

Question 22

Substantive analytical procedures may occur prior to fieldwork. Suggested edit to make question more clear

Question 23

The receiving report in an electronic environment:

A) may be a continuation of the purchase order.
B) may be a continuation of the supplier purchase confirmation.
C) may be a continuation of the supplier invoice.
D) All of the above.

Question 24

Compensating controls override other controls.

Question 25

Which of the below companies would be likely to use foreign currency hedges?

A) National glass manufacturer.
B) A regional glass manufacturer.
C) An international glass manufacturer.
D) None of the above.

Question 26

Hedges are used to:

A) protect against supply disruptions.
B) protect against price decreases.
C) protect against foreign currency fluctuations.
D) All of the above.

Question 27

Auditors frequently use account analysis in auditing expenses.

Question 28

Auditors test the ICFR by reviewing the receiving process.

Question 29

EDGAR is a database:

A) maintained by the FASB.
B) comprised of public companies.
C) maintained by the PCAOB.
D) None of the above.

Question 30

Tests of balances is achieved by confirming accounts payable.

Question 31

Manufacturers differ from retailers in that manufacturers:

A) purchase from suppliers.
B) purchase raw materials from suppliers.
C)
C) add labor to raw material.
D) Both b and

Question 32

Properly posting of transactions involves:

A) posting the correct amount.
B) posting in the correct period.
C) posting in the correct account.
D) All of the above.

Question 33

Purchase authorization is granted by:

A) using a pre-approved supplier list.
B) using a pre-approved price list.
C) requiring management approval for all purchases.
D) All of the above.

Question 34

Evidence of proper payment involves which documents:

A) a supplier invoice and a receiving report.
B) a supplier invoice and a purchase order.
C) a supplier invoice, a purchase requisition, and a receiving report.
D) None of the above.

Question 35

If the internal control environment is strong, the auditor need not search for unrecorded liabilities.

Question 36

SAB 108 dictates that auditors consider materiality for the balance sheet only.

Question 37

A blanket purchase order is used to:

A) communicate expected demand to a supplier.
B) communicate firm purchase orders from a supplier.
C) communicate firm demand to a supplier.
D) All of the above.

Question 38

What purpose does a purchase requisition serve?

A) It describes why something needs to be purchased.
B) It provides evidence for the purchase.
C)
C) It separates the requisition from the purchase.
D) Both b and

Question 39

The auditor must consider internal control when considering whether to rely on substantive analytical procedures.

Question 40

Touring client facilities allows auditors an opportunity to inspect long-lived assets possible impairment.

Question 41

Most dual-purpose audit tests:

A) begin by selecting amounts that have been recorded.
B) begin by selecting amounts from accounts known to have weak controls.
C) begin by selecting all transactions for the current period.
D) All of the above.

Question 42

Testing whether transactions are recorded in the correct journal and/or ledger is an example of which assertion?

A) Occurrence.
B)
B) Cut-off.
C) Rights and obligations.
D) Both a and

Question 43

Dual purpose tests:

A) are encouraged by AS #5.
B)
B) require careful planning.
C) must be timed as close as possible to year-end.
D) Both a and

Question 44

One test that determines if the completeness assertion is met is:

A) bank reconciliation.
B) reconciling vendor invoices to receiving reports.
C)
C) reconciling vendor invoices to the accounts payable subsidiary ledger.
D) Both b and

Question 45

Which of the following duties should be segregated?

A) Executing and issuing the purchase order.
B) Recording the receipt of goods and payment to the supplier.
C) Recording the payment and updating the general ledger.
D) All of the above should be separated.

Question 46

Bank reconciliations should be prepared by:

A) the controller.
B) the treasurer.
C) the cashier who works for the treasurer.
D) Any of the above.

Question 47

When the accounts payable department posts a liability:

A) an asset is recognized.
B) an expense is recognized.
C) a liability is reduced.
D) Either a or b depending on the transaction.

Question 48

Dual purpose tests of asset acquisitions should:

A) be timed as close as possible to year-end.
B) must consider both the ICFR and financial statement impact.
C)
C) must be examined as close to the acquisition date as possible.
D) Both b and

Question 49

A debit memo has what effect on the general ledger?

A) It increases cash disbursements.
B) It increases inventory.
C) It decreases accounts payable.
D) None of the above.

Question 50

The advantage of an electronic document is that it:

A) can be updated automatically.
B)
B) can be used for multiple purposes.
C) Both a and
D) None of the above.

Question 51

Comparing prices and quantities on a supplier's invoice achieves which assertion(s)?

A) Existence.
B) Valuation.
C)
C) Rights and obligations.
D) Both b and

Question 52

Which of the following helps to ensure that transactions are posted in the correct period?

A) Reconciliation of vendor invoices to the payment authorization.
B) Reconciliation of the bank statement.
C) Reconciliation of the cash disbursements journal to the accounts payable subsidiary ledger.
D) All of the above.
E)

Question 53

How would you test a computer application designed to re-order inventory automatically when it falls below a predetermined point?

A) Examine purchase orders for proper management approval.
B) Determine of the supplier is on the approved list.
C) Perform tests of parameters to determine if purchase orders were generated when inventory was above the re-order point.
D) All of the above.

Question 54

The accounts payable subsidiary ledger provides what purpose?

A) It lists all payables.
B) It details the approved amounts owed to suppliers as of a certain date.
C) It supports both accrued and unaccrued liabilities.
D) All of the above.

Question 55

Pre-numbering purchase orders achieves which assertion(s)?

A) Authorization.
B) Existence.
C)
C) Completeness.
D) Both a and

Question 56

In order to meet the completeness assertion when considering a dual purpose test, the auditor should:

A) trace receiving reports and supplier invoices to the accounts payable subsidiary ledger.
B) agree the amount from the receiving report to the supplier invoice.
C)
C) agree the amount from the supplier invoice to the accounts payable subsidiary ledger.
D) Both a and

Question 57

How would you detect that purchase transactions have not been properly recorded in the correct time period?

A) Trace receiving reports to supplier invoices.
B) Compare the dates on the receiving tickets.
C)
C) Trace unmatched receiving reports to the appropriate journal or ledger.
D) Both a and

Question 58

Requiring receiving reports achieves which assertion(s)?

A) Existence.
B) Valuation.
C)
C) Allocation.
D) Both b and

Question 59

How would you detect that accounts payable transactions had been omitted from the general ledger?

A) Reconcile the receiving reports to the subsidiary ledger.
B) Reconcile the subsidiary ledger to the general ledger.
C) Reconcile the cash disbursements journal to the subsidiary ledger.
D) Any of the above would detect the error.

Question 60

Computer-assisted audit techniques (CAAT) can be used to:

A) scan the cash disbursement ledger in search of unusual amounts.
B) scan the cash disbursement ledger in search of unusual times of posting.
C) scan the cash disbursement ledger in search of postings from unauthorized terminals.
D) All of the above.

Question 61

Which of the following are steps in an account analysis?

A) Start with the beginning balance, then trace transactions to the ending balance.
B) Start with the beginning balance, then trace transactions to the appropriate journal/ledger.
C) Start with the beginning balance, then trace transactions to supporting documentation.
D) All of the above.

Question 62

Substantive analytical procedures:

A) can replace audit testing of balances.
B) can replace audit testing of transactions.
C) can augment audit testing if the ICFR is accurate.
D) None of the above.

Question 63

Account analyses are performed for:

A) accounts that do not consist of complex transactions.
B) accounts that relate to other, larger accounts.
C) accounts that change frequently.
D) All of the above.

Question 64

SFAC 6 addresses which assertion:

A) existence.
B) allocation.
C) rights and obligations.
D) All of the above.

Question 65

An account that is particularly difficult to audit in the automotive industry is:

A) accounts payable.
B) warranty liability.
C) cash disbursements.
D) All are equally difficult.

Question 66

The search for unrecorded liabilities consists of:

A) a review of unmatched invoices.
B)
B) a review of unmatched receiving reports.
C) a review of entries in the accounts payable subsidiary ledger.
D) Both a and

Question 67

The auditor assesses a client's handles possible impairment: TYPO - what is the question?

A) during tests of transactions.
B) during tests of the ICFR.
C) during tests of balances.
D) None of the above.

Question 68

The ICFR for the procurement process is:

A) especially critical for manufacturing industries.
B) especially critical in the automotive industry.
C) especially critical in an industry with a high degree of production.
D) All of the above.
E)

Question 69

Account analyses are:

A) tests of balances.
B)
B) tests of transactions.
C) Both a and
D) None of the above.

Question 70

An accrual is different from a payable in that:

A) the accrual amount is unknown.
B) the accrual is an estimate.
C)
C) the payment is not yet due.
D) Both b and

Question 71

Auditors normally test accounts payable balances by:

A) sending out negative confirmations.
B) sending out positive confirmations.
C) matching supplier invoices to receiving reports.
D) matching supplier invoices to cash disbursements.

Question 72

Purchase commitments:

A) must be disclosed.
B) must be recorded.
C)
MATCHING
C) must be audited prior to recording.
D) Both b and

Question 73

Accounts payable confirmations:

A) address the completeness assertion.
B) address the cut-off assertion.
C) address the valuation assertion.
D) All of the above.

Question 74

The auditor reviews subsequent payments made to suppliers in order to detect: TYPO

A) unrecorded liabilities.
B) errors in postings.
C) errors in the bank reconciliation.
D) All of the above.

Question 75

Comparing the balance per the accounts payable subsidiary ledger with the general ledger:

A) achieves the completeness assertion.
B) achieves the authorization assertion.
C) achieves the existence assertion.
D) All of the above.

Question 76

Substantive audit procedures:

A) support direct audit tests for expenses.
B)
B) can detect unusual relationships between accounts. TYPO
C) Both a and
D) None of the above.

Question 77

Accounts payable confirmations are sent to:

A) suppliers with large credit balances.
B) all suppliers, regardless of balance.
C)
C) all suppliers, except those with zero balances.
D) Both b and

Question 78

Calculating the inventory turnover ratio:

A) helps the auditor to determine if inventory accounts are properly stated.
B)
B) helps the auditor to determine if sales accounts are properly stated.
C) Both a and
D) None of the above.

Question 79

An auditor requests a tour of the production facilities prior to observing inventory. The reason for this is:

A) to observe the state of the physical plant.
B) to observe the layout of the plant.
C) to observe how production flowed.
D) None of the above.

Question 80

Which of the following tests are appropriate for intangible assets? TYPO

A) Tests of details.
B) Substantive analytical procedures.
C) Tests of cash disbursements.
D) All of the above.