Question 1

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that
A) recorded acquisitions are for goods and services received.
B) existing acquisitions are recorded.
C) acquisitions are correctly valued.
D) acquisitions are correctly classified.

Accepted Answer

Internal controls that ensure transactions primarily benefit the entity being audited rather than management or other employees help to prevent fraudulent or improper recording of expenses, and support the control objective that recorded acquisitions are for goods and services received.

Question 2

The analytical procedure that requires the auditor to "inspect the list of accounts payable for unusual or non-vendor payables" would have the best chance of discovering which possible error?
A) misstatement of accounts payable and expenses
B) classification error for non-trade liabilities
C) unrecorded accounts or misstatements
D) invalid accounts or misstatements

Accepted Answer

This procedure is specifically designed to identify payables that do not belong to regular trade vendors, which could indicate a classification error for non-trade liabilities.

Question 3

The test of details of balances procedure to "inspect the accounts payable trial balance and master file for related parties, notes, or other interest-bearing liabilities" satisfies the objective of
A) existence.
B) completeness.
C) classification.
D) detail tie-in.

Accepted Answer

Inspecting the accounts payable trial balance and master file for related parties, notes, or other interest-bearing liabilities helps ensure that liabilities are properly classified in the financial statements, satisfying the objective of classification.

Question 4

Because many of the types of errors and irregularities that may be found in the acquisition and payment cycle represent a misstatement of earnings and are of significant concern to the auditor, the tolerable exception rate selected by the auditor for attribute testing of this cycle will be
A) low.
B) high.
C) average.
D) 15% or less.

Accepted Answer

The acquisition and payment cycle generates financial statement accuracy risks that could result in a misstatement of earnings. As a result, the auditor will use a lower tolerable exception rate when performing attribute testing to ensure that any mistakes are detected.

Question 5

The internal control objective to determine that "existing acquisition transactions are recorded" describes the objective of
A) occurrence.
B) classification.
C) completeness.
D) accuracy.

Accepted Answer

The internal control objective to determine that "existing acquisition transactions are recorded" is related to the completeness of the transaction records. This objective ensures that all acquisition transactions that should have been recorded are actually recorded in a timely and accurate manner.

Question 6

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 supplier discounts
D) significant related party transactions

Accepted Answer

Significant related party transactions create a higher risk of potential conflicts of interest and may indicate the need for greater scrutiny and testing of the accounts payable and acquisition cycle. The other options listed may help mitigate inherent risk, but they do not necessarily indicate an increase or decrease in risk.

Question 7

The main focus taken by the auditor in verifying liability balances is on the discovery of
A) liabilities posted to the wrong account.
B) overstated liabilities.
C) understated or omitted liabilities.
D) overstated or extraneous liabilities.

Accepted Answer

The main focus of verifying liability balances is on the discovery of understated or omitted liabilities as these can have a significant impact on the financial statements. Overstated or extraneous liabilities may also be important to identify, but they are not typically as problematic as those that are understated or omitted. Liabilities posted to the wrong account may be discovered during the verification process, but they are not the main focus.

Question 8

Since the audit of accounts payable generally takes a considerable amount of audit time, effective and properly tested internal controls can significantly reduce audit costs by reducing
A) tests of controls.
B) confirmations.
C) tests of details of balances.
D) analytical procedures.

Accepted Answer

Effective and properly tested internal controls can significantly reduce audit costs by reducing tests of details of balances in the audit of accounts payable. This is because, with strong internal controls, there is a lower risk of misstatements or errors in the accounts payable balances, reducing the need for extensive testing by the auditor. However, tests of controls, confirmations, and analytical procedures may still be necessary even with strong internal controls in place.

Question 9

The control test that requires "the auditor to compare recorded transactions in the acquisitions journal with the vendor's invoice, receiving report, and other supporting documentation" satisfies the objective of
A) occurrence.
B) classification.
C) completeness.
D) accuracy.

Accepted Answer

This control test ensures that the transactions recorded in the acquisitions journal are accurate by verifying them against the vendor's invoice, receiving report, and other supporting documentation. It checks for the correctness of the amount and other data related to the transactions, thus satisfying the objective of accuracy.

Question 10

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

Accepted Answer

Attachment of the receiving report to the invoice ensures that payments are made only for goods that have been received and that each invoice is matched with its corresponding receiving report, preventing duplicate payments for the same shipment.

Question 11

Because of the importance of tests of controls for acquisitions and cash disbursements, it is common in this audit area to use
A) attributes sampling.
B) variables sampling.
C) probability-proportional-to-size sampling.
D) block sampling.

Accepted Answer

Attributes sampling is the best choice for testing controls for acquisitions and cash disbursements because it is a good method for identifying whether a control is operating effectively or not. This method is based on a binary response (either the control is operating effectively or not) and is useful for identifying areas of weakness that require further investigation. Variables sampling, probability-proportional-to-size sampling, and block sampling are more appropriate for testing the accuracy or completeness of account balances or transactions, rather than testing the effectiveness of controls.

Question 12

The test of transactions that requires the recomputing of cash discounts satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.

Accepted Answer

Recomputing cash discounts ensures that the calculations in the transactions are accurate, which satisfies the objective of accuracy in auditing.

Question 13

ZyCo has recently converted to a new online accounts payable system. To test that all vendor balances have been converted to the vendor master file (completeness), the auditor would
A) conduct cutoff tests for receiving reports and vendor invoices.
B) on a test basis, agree vendor file details for each vendor from the new (online) system to the old (batch) system.
C) on a test basis, agree vendor file details for each vendor from the old (batch) system to the new (online) system.
D) conduct tests of programs to verify that programs in the new systems are functioning as designed.

Accepted Answer

The best way to test the completeness of the vendor balances is to compare the vendor file details for each vendor from the old (batch) system to the new (online) system on a test basis. This ensures that all vendor balances have been successfully converted to the new system. Cutoff tests for receiving reports and vendor invoices (Choice A) are used to test the accuracy of transactions recorded in the proper period. Testing of programs to verify that they are functioning as designed (Choice D) is important for testing the correct processing of transactions but is not directly relevant to the completeness of vendor balances. Agreements between the vendor file details for each vendor from the new system to the old system (Choice B) would not provide any assurance about the completeness of vendor balances in the new system.

Question 14

The internal control that requires an "independent verification of calculations and amounts" satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.

Accepted Answer

The internal control of independent verification of calculations and amounts is aimed at ensuring accuracy. This control involves having someone separate from the person who made the calculations or recorded the amounts check and verify them to ensure that they are correct. This helps to prevent errors and fraud that could otherwise occur due to unintentional mistakes or intentional manipulation of numbers.

Question 15

Comparing expenses to prior years is an effective analytical procedure for accounts payable because expenses from year to year are
A) relatively stable.
B) erratic.
C) variable.
D) dynamic.

Accepted Answer

Comparing expenses to prior years is effective because expenses are relatively stable from year to year, making it easier to identify any significant changes or anomalies.

Question 16

Which of the following controls help to ensure that the receipt of raw materials for inventory is recorded in the correct period?
A) Supplier details are automatically retrieved from the supplier master file.
B) Receiving staff write down the date goods are received on the bill of lading.
C) Accounting staff record the date that goods are received in the accounting systems.
D) The transaction date entered must be the same as the system date.

Accepted Answer

The answer of Which of the following controls help to...

Question 17

The internal control that requires "approval of acquisitions at the proper level" satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.

Accepted Answer

The internal control that requires approval of acquisitions at the proper level ensures that only valid and authorized transactions are recorded in the financial statements, thus satisfying the occurrence objective of internal control. This control helps to prevent the occurrence of fraudulent, unauthorized, or inappropriate acquisitions.

Question 18

The internal control that requires "new vendors and changes to vendor file be approved" satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.

Accepted Answer

The internal control of requiring approval for new vendors and changes to vendor files relates to the occurrence objective, which ensures that all transactions that are supposed to be recorded have been recorded. By requiring approval, the organization can ensure that new vendors are legitimate and valid, and that changes to existing vendor information are authorized and accurate. This helps to prevent fraudulent vendors from being added to the system and ensures that vendor information is accurate and up-to-date.

Question 19

When processing and recording cash disbursements, it is important to have a method of cancelling the supporting documents to prevent their reuse as support for another cheque at a later time. A common method is to
A) shred the documents so they can't be reused.
B) transfer possession of the documents to a bank vault such as a safety deposit box.
C) move the documents to a permanent off-site facility such as a warehouse.
D) write the cheque number and payment date on the supporting documents.

Accepted Answer

Writing the cheque number and payment date on the supporting documents allows for easy tracking and identification of which cheque the document was used to support. This makes it difficult for the document to be reused for another cheque at a later time. Shredding, transferring to a bank vault, or moving to an off-site facility are all unnecessary and inefficient methods for cancelling supporting documents.

Question 20

The internal control that requires receiving reports to be prenumbered and accounted for satisfies the objective of
A) occurrence.
B) classification.
C) completeness.
D) accuracy.

Accepted Answer

The internal control of prenumbering and accounting for receiving reports ensures that all reports are included in the accounting records, satisfying the completeness objective. It does not ensure occurrence (that the reported transactions actually took place), classification (that the transactions are properly categorized), or accuracy (that the reported amounts are correct).

Quiz 13: Audit of the Acquisition and Payment Cycle

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that

The analytical procedure that requires the auditor to "inspect the list of accounts payable for unusual or non-vendor payables" would have the best chance of discovering which possible error?

The test of details of balances procedure to "inspect the accounts payable trial balance and master file for related parties, notes, or other interest-bearing liabilities" satisfies the objective of

Because many of the types of errors and irregularities that may be found in the acquisition and payment cycle represent a misstatement of earnings and are of significant concern to the auditor, the tolerable exception rate selected by the auditor for attribute testing of this cycle will be

The internal control objective to determine that "existing acquisition transactions are recorded" describes the objective of

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

The main focus taken by the auditor in verifying liability balances is on the discovery of

Since the audit of accounts payable generally takes a considerable amount of audit time, effective and properly tested internal controls can significantly reduce audit costs by reducing

The control test that requires "the auditor to compare recorded transactions in the acquisitions journal with the vendor's invoice, receiving report, and other supporting documentation" satisfies the objective of

An auditor 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

Because of the importance of tests of controls for acquisitions and cash disbursements, it is common in this audit area to use

The test of transactions that requires the recomputing of cash discounts satisfies the objective of

ZyCo has recently converted to a new online accounts payable system. To test that all vendor balances have been converted to the vendor master file (completeness) , the auditor would

The internal control that requires an "independent verification of calculations and amounts" satisfies the objective of

Comparing expenses to prior years is an effective analytical procedure for accounts payable because expenses from year to year are

Which of the following controls help to ensure that the receipt of raw materials for inventory is recorded in the correct period?

The internal control that requires "approval of acquisitions at the proper level" satisfies the objective of

The internal control that requires "new vendors and changes to vendor file be approved" satisfies the objective of

When processing and recording cash disbursements, it is important to have a method of cancelling the supporting documents to prevent their reuse as support for another cheque at a later time. A common method is to

The internal control that requires receiving reports to be prenumbered and accounted for satisfies the objective of