Question 1

One of the ways to prevent the use of fictitious vendors to steal company funds is to
A)have adequate network access controls to prevent unauthorized access to transaction files.
B)ensure that accounts payable programs are available only in source code.
C)establish controls to establish only approved vendors.
D)reconcile the accounts payable trial balance to the general ledger.

Accepted Answer

By establishing controls to approve vendors, the company can ensure that only legitimate vendors are used and fictitious ones are not created to siphon off funds. This can include verifying vendor information, obtaining multiple bids for transactions, and regularly reviewing vendor lists. Network access controls and source code availability may help with overall security but may not specifically prevent fictitious vendors. Reconciling accounts payable trial balances to the general ledger can detect errors or discrepancies but may not prevent the creation of fictitious vendors.

Question 2

A)Describe each of the four business functions that comprise the acquisition and payment cycle.B)Describe the key documents used in processing purchase orders for the acquisitions and payment cycle.C)Discuss the key documents and records used in recognizing the liability function in the acquisitions and payment cycle.

Accepted Answer

A)The four business functions that comprise the acquisition and payment cycle are:
•Processing purchase orders.This function involves the preparation of a purchase requisition and a purchase order to acquire goods and services.
•Receiving goods and services.When goods are received,a receiving report is prepared that indicates the description of goods,the quantity received,the date received,and other relevant data.
•Recognizing the liability.In most companies,the liability for acquisitions is recognized when the goods and services are received;in other companies,it is deferred until the vendor's invoice is received.
•Processing and recording cash disbursements.This function involves the signing and mailing of the cheque for payment of the acquisition and recording of the cash disbursement in the cash disbursements journal.
B)The key documents and files used in processing purchase orders in the acquisitions and payment cycle are:
•Purchase requisition.This is a request by an authorized employee to the purchasing department to place an order for inventory and other items used by an entity.
•Purchase order.This is prepared by the purchasing department indicating the description,quantity,and related information for goods and services that the company intends to purchase.
C)The key documents and records used in the recognizing the liability function in the acquisitions and payment cycle are:
•Vendor's invoice.This document,sent by the vendor,indicates the description and quantity of goods and services received,price including freight,cash discount terms,and date of the billing.
Debit Memo.This document is used to indicate a reduction in the amount owed to a vendor because of returned goods or an allowance granted.
Voucher.Is commonly used by organizations to establish a formal means of recording and controlling acquisitions,primarily by enabling each acquisition transaction to be sequentially numbered.
Acquisitions Transaction File.This is a computer-generated file that includes all
acquisition transactions processed by the accounting system for a period,such as a
day,week,or month.It includes information for each transaction,such as vendor name,date,amount,account classification or classifications,and description and quantity of goods and services purchased.
Acquisitions Journal or Listing.The acquisitions journal or listing,often referred to as
the purchases journal,is generated from the acquisitions transaction file and typically
includes the vendor name,date,amount,and account classification or classifications
for each transaction,such as repair and maintenance,inventory,or utilities.
Accounts Payable Master File.An accounts payable master file records acquisitions,
cash disbursements,and acquisition returns and allowances transactions for each vendor.
The master file is updated from the acquisition,returns and allowances,and cash
disbursement computer transaction files.
Accounts Payable Trial Balance.An accounts payable trial balance listing includes
the amount owed to each vendor or for each invoice or voucher at a point in time.It
is prepared directly from the accounts payable master file.
Vendor's Statement.A vendor's statement is a document prepared monthly by the
vendor and indicates the beginning balance,acquisitions,returns and allowances,
payments to the vendor,and ending balance.

Question 3

One of the ways to prevent the use of fictitious vendors to steal company funds is by
A)having adequate network access controls to prevent unauthorized access to transaction files.
B)ensuring that accounts payable programs are available only in source code.
C)having software automatically check for duplicate invoice numbers before payment.
D)having authorized personnel carefully scrutinize documentation supporting payments.

Accepted Answer

Having authorized personnel carefully scrutinize documentation supporting payments is the best way to prevent the use of fictitious vendors to steal company funds because it helps to detect inconsistencies and irregularities in the payment documents. This can include verifying vendor information, checking for duplicate or suspicious invoice numbers, and confirming that the goods or services were actually received by the company. While the other options mentioned (network access controls, source code availability, and duplicate invoice checks) can also be helpful in preventing fraud, they are not specifically targeted at detecting fictitious vendor schemes.

Question 4

The purchase order,usually in writing,is a legal document that is
A)a non-binding agreement between client and vendor.
B)an offer to buy.
C)not enforceable if it is not in writing.
D)an acceptance of a vendor's catalogue offer to sell.

Accepted Answer

A purchase order is an offer made by the buyer to the vendor to purchase goods or services. It becomes a binding contract between the two parties once the vendor accepts the offer. Therefore, the purchase order is an offer to buy, making option B the correct answer. Option A is incorrect because a purchase order is a binding agreement, not a non-binding one. Option C is incorrect because a purchase order can be enforceable through verbal or written means, but it is usually in writing. Option D is incorrect because a purchase order is not an acceptance of a vendor's offer, but rather an offer made by the buyer.

Question 5

One form of accounts payable fraud occurs when the accounts payable clerk or another employee steals a cheque made payable to a legitimate vendor.The purchaser's information is then resubmitted for payment and the second cheque sent to the vendor.How could such a theft be prevented?
A)Cancel supporting documents to prevent their being re-used.
B)Make sure that all payments are supported by valid documents.
C)Reconcile the transaction files to the accounts payable master file.
D)Have receiving reports authorized independently.

Accepted Answer

Canceling supporting documents after they are used ensures they cannot be reused fraudulently to generate duplicate payments.

Question 6

The point at which most companies first recognize the acquisition and related liability on their records is when the
A)purchase requisition is completed.
B)purchase order is completed.
C)receiving report is completed.
D)vendor's invoice is paid.

Accepted Answer

The receiving report indicates that the company has received the goods or services ordered, which is the point at which most companies recognize the acquisition and related liability on their records. This is because the receipt of goods or services completes the transaction from the buyer's perspective, making it the appropriate time to record the acquisition and the associated liability.

Question 7

What are the risks of error or fraud in the acquisition and payment cycle?

Accepted Answer

The answer of What are the risks of error or...

Question 8

The most common fraud in the acquisitions area is for the perpetrator to
A)alter the cheque payment file before it is printed so that the payee name is changed.
B)issue payments to fictitious vendors and deposit the cheques to a fictitious account.
C)change the optical characters at the bottom of a cheque to alter the account to be credited.
D)issue duplicate payments for invoices and then pocket the second cheque.

Accepted Answer

Issuing payments to fictitious vendors and depositing the cheques to a fictitious account is the most common type of fraud in the acquisitions area, also known as vendor fraud. The perpetrator creates a fake vendor account and submits invoices for payment, which are authorized and paid. The money is then diverted to the fictitious account instead of the legitimate vendor. This type of fraud is difficult to detect because it involves creating fake identities and manipulating the payment process.

Question 9

Which of the following areas are tested as part of the audit of the acquisition and payment cycle?
A)payment for raw materials,receipt of raw materials,shipment of goods to customers
B)processing of sales orders,production of goods for clients,and subsequent invoicing
C)processing vendor invoices,vendor master file changes,shipment of goods to customers
D)processing purchase orders,processing cash disbursements,receiving goods and services

Accepted Answer

The acquisition and payment cycle involves the process of purchasing goods and services, and subsequently paying for them. This includes processing purchase orders, receiving goods and services, processing vendor invoices and making cash disbursements. Option A relates to the raw material purchase cycle, Option B relates to the sales cycle and Option C relates to the shipping cycle.

Question 10

The major balance sheet account in the acquisition and payment cycle is
A)accounts payable.
B)purchases.
C)merchandise inventory.
D)common stock.

Accepted Answer

The major balance sheet account in the acquisition and payment cycle is accounts payable. This account represents the amount owed to suppliers for goods and services received but not yet paid for. The acquisition and payment cycle involves the purchasing of goods and services, recording those purchases, and paying vendors for those purchases. Accounts payable is the primary account affected by these transactions, making it the major balance sheet account in this cycle.

Question 11

To determine whether accounts payable are complete,an auditor performs a test to verify that all merchandise received is recorded.Which of the following is the population for this test?
A)supplier invoices
B)purchase orders
C)receiving reports
D)customer invoices

Accepted Answer

The population for this test would be the receiving reports, as these documents provide evidence of all merchandise received by the company. The auditor would want to verify that all items recorded on receiving reports were included in accounts payable. Supplier invoices and purchase orders may not necessarily reflect all merchandise received, and customer invoices are not relevant to verifying accounts payable completeness.

Question 12

The proper recognition of accounts payable liabilities are crucial to ensure fair statement of the ending accounts payable balance.What documents are required to adequately support accounts payable?
A)receiving reports and bill of lading documents that indicate dates shipped
B)bill of lading documents matched to the internal purchase requisition
C)purchase requisition (authorized)matched with the purchase order to the vendor
D)vendor invoices matched to receiving reports and authorized purchase documents

Accepted Answer

Vendor invoices matched to receiving reports and authorized purchase documents is the most crucial document to support accounts payable. It indicates that the goods or services have been received and accepted, and the corresponding purchase requisition and purchase order were authorized. Receiving reports and bill of lading documents that indicate dates shipped and bill of lading documents matched to the internal purchase requisition are also relevant in verifying the accuracy of the invoice, but they do not provide as comprehensive information as vendor invoices.

Question 13

What are the significant risks relating to accounts payable and accrued liabilities?

Accepted Answer

The answer of What are the significant risks relating to...

Question 14

What documentary evidence is appropriate in attempting to determine if recorded purchase transactions are valid and prices on the vendors' invoices are correct?
A)purchase requisitions and accounts payable entries
B)purchase requisitions and purchases orders
C)receiving report and purchase orders
D)purchase orders and bid quotes

Accepted Answer

The receiving report provides evidence that the goods were actually received, while the purchase order confirms the details of the transaction, such as the correct vendor, price, and quantities ordered. This combination of documents allows for a comparison of the invoice against what was actually received and ordered to ensure accuracy and validity of the transaction. Purchase requisitions and accounts payable entries (A) may provide some information, but they do not confirm the details of the actual purchase transaction. Purchase requisitions and purchase orders (B) provide some evidence of the transaction, but they do not have the receiving report as a key component to confirm the goods were actually received. Purchase orders and bid quotes (D) do not provide evidence that the vendor actually fulfilled the order or that the goods were received.

Question 15

When accounts payable and purchasing systems are highly automated,more detail is included in the transaction files.This deeper level of detail is illustrated by including
A)economic order quantities for each item that is held in inventory,including delivery times.
B)quantities,prices,and item descriptions from each line of the vendor invoice.
C)sequentially numbered purchase requisitions and purchase orders (with matching numbers).
D)receiving report numbers that match the numbers on the vendor invoices for improved tracking.

Accepted Answer

When accounts payable and purchasing systems are highly automated, more detail is included in the transaction files, including quantities, prices, and item descriptions from each line of the vendor invoice. This higher level of detail helps to ensure accuracy and provide comprehensive records for auditing purposes. The other options are also relevant, but do not capture the same level of detail as option B.

Question 16

Which of the following situations would indicate increased inherent risk in the accounts payable and acquisition cycle?
A)good quality internal controls for cash handling
B)the use of packaged software for accounting (including accounts payable)
C)the use of clear,standard terms when negotiating vendor discounts
D)significant related party transactions

Accepted Answer

Significant related party transactions can indicate increased inherent risk in the accounts payable and acquisition cycle because there may be a higher likelihood of improper or fraudulent transactions and potential conflicts of interest. Good quality internal controls for cash handling and the use of packaged software for accounting can mitigate inherent risk. The use of clear, standard terms when negotiating vendor discounts may also reduce inherent risk by promoting transparency and fairness in the procurement process.

Question 17

Which business functions are part of the acquisition and payment cycle?

Accepted Answer

The answer of Which business functions are part of the...

Question 18

A document identifying the description,vendor,quantity,and related information for goods and services the company intends to purchase is the
A)purchases catalogue.
B)purchase requisition.
C)receiving report.
D)purchase order.

Accepted Answer

A purchase order is a document that outlines the details of a purchase, including the description of the goods or services, the vendor, the quantity, and other related information. It serves as a legally binding contract between the buyer and the supplier, and specifies the terms and conditions of the purchase, such as delivery date and payment. The other options, such as a purchases catalogue, purchase requisition, and receiving report, are related to the process of purchasing but do not serve as an order for goods/services.

Question 19

Many companies have inventory that is easy to steal and is readily marketable.Which of the following controls helps to prevent theft and misuse of inventory?
A)physical control of inventory from time of receipt until use
B)proper access controls over the inventory master and transaction files
C)dual signatures required on all purchase orders over $10 000
D)purchase requisitions are to be approved by the production manager

Accepted Answer

Physical control of inventory from time of receipt until use is the most effective control to prevent theft and misuse of inventory. This includes managing access to inventory storage areas, implementing security measures to restrict unauthorized access, and maintaining an up-to-date inventory record system to track all inventory movements. Proper access controls over inventory master and transaction files and purchase requisition approval also play a role in inventory control, but physical control is the front line defense against theft and misuse. Dual signatures required on all purchase orders may help prevent fraudulent purchases but does not directly address physical theft of inventory.

Question 20

To protect against theft of physical assets (such as computer equipment),the company should
A)assign computers to specific individuals at the company
B)assign computers to specific areas within the company
C)use strong access controls (such as login passwords)to prevent access
D)have equipment engraved or otherwise permanently labelled and a subsidiary ledger maintained

Accepted Answer

Having equipment engraved or permanently labelled with a subsidiary ledger maintained can discourage theft as it makes it easier to identify and track stolen items. Assigning computers to specific individuals or areas within the company and using strong access controls can also help prevent theft but may not necessarily deter thieves.

Quiz 13: Audit of the Acquisition and Payment Cycle

One of the ways to prevent the use of fictitious vendors to steal company funds is to

One of the ways to prevent the use of fictitious vendors to steal company funds is by

The purchase order,usually in writing,is a legal document that is

One form of accounts payable fraud occurs when the accounts payable clerk or another employee steals a cheque made payable to a legitimate vendor.The purchaser's information is then resubmitted for payment and the second cheque sent to the vendor.How could such a theft be prevented?

The point at which most companies first recognize the acquisition and related liability on their records is when the

What are the risks of error or fraud in the acquisition and payment cycle?

The most common fraud in the acquisitions area is for the perpetrator to

Which of the following areas are tested as part of the audit of the acquisition and payment cycle?

The major balance sheet account in the acquisition and payment cycle is

To determine whether accounts payable are complete,an auditor performs a test to verify that all merchandise received is recorded.Which of the following is the population for this test?

The proper recognition of accounts payable liabilities are crucial to ensure fair statement of the ending accounts payable balance.What documents are required to adequately support accounts payable?

What are the significant risks relating to accounts payable and accrued liabilities?

What documentary evidence is appropriate in attempting to determine if recorded purchase transactions are valid and prices on the vendors' invoices are correct?

When accounts payable and purchasing systems are highly automated,more detail is included in the transaction files.This deeper level of detail is illustrated by including

Which of the following situations would indicate increased inherent risk in the accounts payable and acquisition cycle?

Which business functions are part of the acquisition and payment cycle?

A document identifying the description,vendor,quantity,and related information for goods and services the company intends to purchase is the

Many companies have inventory that is easy to steal and is readily marketable.Which of the following controls helps to prevent theft and misuse of inventory?

To protect against theft of physical assets (such as computer equipment) ,the company should