Question 1

When automatic purchase orders are generated, to help make sure that goods are ordered for products that the company still needs, the company should
A) have all purchase orders approved by the purchasing manager.
B) have suppliers automatically replenish the shelves.
C) ensure that re-order points are monitored.
D) have receiving reports matched to the purchase order amounts.

Accepted Answer

Monitoring re-order points will ensure that goods are only ordered when they are needed, preventing overstocking or stockouts. Approving all purchase orders, automatic replenishment, and matching receiving reports to purchase orders are all important steps in the purchasing process, but do not directly address the issue of ordering goods only when needed.

Question 2

One of the ways to prevent the use of fictitious suppliers 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 suppliers are used and fictitious suppliers are not created. This can include conducting background checks and verifying vendor information before adding them to the approved vendor list. Adequate network access controls and reconciling the accounts payable trial balance to the general ledger may help detect fraud, but they do not necessarily prevent the creation of fictitious suppliers in the first place. Ensuring that accounts payable programs are available only in source code is not directly related to preventing fictitious supplier fraud.

Question 3

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 is because when goods and services are acquired, the company incurs a liability to pay for them, which is recorded as accounts payable. The cycle includes processes such as placing purchase orders, receiving goods or services, verifying invoices, and making payments, all of which impact the accounts payable balance.

Question 4

After the supplier master file data has been entered, to best improve internal controls the
A) supplier master file data should be matched to the accounts payable files.
B) transaction file detail should be matched to the supplier master file.
C) data entry should be independently verified.
D) accounting department should file the new supplier authorization form sequentially.

Accepted Answer

Independent verification of data entry ensures accuracy and reduces the risk of errors or fraud being entered into the supplier master file. While matching the supplier master file data to accounts payable files and transaction file detail to the supplier master file are important steps in internal controls, they do not directly address the accuracy of the data entered into the supplier master file. Sequential filing of new supplier authorization forms is important for organizational purposes but does not improve internal controls.

Question 5

One of the ways to prevent the use of fictitious suppliers 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

The best way to prevent the use of fictitious suppliers to steal company funds is by having authorized personnel carefully scrutinize documentation supporting payments. This includes reviewing invoices, purchase orders, and other supporting documentation to ensure that they are legitimate and match the goods or services received by the company. This can help prevent fraud by catching discrepancies or inconsistencies before payments are made. While the other options (A, B, and C) may also be helpful in preventing fraud, they are not as effective as having authorized personnel carefully reviewing and verifying payments.

Question 6

Segregation of duties has an important role in providing for good quality internal controls. Which of the following segregation of duties improve controls over the inventory and distribution cycle?
A) the purchasing department should not be responsible for updating the economic order quantity
B) the accounting staff should not be responsible for the data entry of supplier invoice detail
C) the inventory transaction processing systems should not be accessible to the receiving department
D) the purchasing department should not be responsible for authorizing the acquisition of or receiving the goods

Accepted Answer

Segregation of duties in the inventory and distribution cycle should ensure that the purchasing department is not responsible for authorizing the acquisition of or receiving goods. This helps prevent the possibility of fraud or errors, as the same department should not have the ability to both approve and receive the goods. The other choices listed also promote segregation of duties, but they are not as directly related to inventory and distribution controls.

Question 7

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 supplier invoice.
C) sequentially numbered purchase requisitions and purchase orders (with matching numbers).
D) having receiving report numbers match the numbers on the supplier invoices for improved tracking.

Accepted Answer

When accounts payable and purchasing systems are highly automated, more detail is included in the transaction files. This deeper level of detail includes quantities, prices, and item descriptions from each line of the supplier invoice. This level of detail helps to ensure accuracy in the accounts payable process and allows for better tracking and analysis of purchasing data.

Question 8

A) Describe each of the five 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

The answer of A) Describe each of the five business...

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 supplier invoices, vendor master file changes, shipment of goods to customers
D) processing purchase orders, vendor master file changes, receiving goods and services

Accepted Answer

The acquisition and payment cycle refers to the process of purchasing goods and services from suppliers, receiving them, and then making payments to vendors for these purchases. Therefore, processing purchase orders, vendor master file changes, and receiving goods and services are all areas that are tested as part of the audit of the acquisition and payment cycle. Choices A and B refer to the sales and production cycle, while choice C includes shipment of goods to customers which is not directly related to the acquisition and payment cycle.

Question 10

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 helps to prevent theft and misuse of inventory by ensuring that inventory is stored securely and monitored at all times. Proper access controls and purchase requisition approvals may also be helpful, but they do not directly address the physical security of inventory. Dual signatures on purchase orders may help prevent fraud, but do not necessarily prevent theft or misuse of inventory.

Question 11

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

The answer of One form of accounts payable fraud occurs...

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 supplier
D) supplier invoices matched to receiving reports and authorized purchase documents

Accepted Answer

The supplier invoices matched to receiving reports and authorized purchase documents are the most important documents to support accounts payable. They provide evidence of the goods or services received and the agreed-upon prices and terms. The other documents listed may also be useful, but they are not always necessary or sufficient to ensure proper recognition of accounts payable liabilities.

Question 13

ZyCo has recently converted to a new online accounts payable system. To test that only authorized vendors have been converted to the vendor master file (occurrence), 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

To test that only authorized vendors have been converted to the vendor master file, the auditor should compare the vendor file details for each vendor from the old system (which would have already undergone authorization checks) to the new system, and ensure that only those vendors present in the old system are also present in the new system. Therefore, a suitable method would be to agree vendor file details for each vendor from the new (online) system to the old (batch) system on a test basis. This would allow the auditor to verify the accuracy of the conversion process and ensure that the vendor master file only contains authorized vendors. Conducting cutoff tests for receiving reports and vendor invoices (option A) would not necessarily ensure that unauthorized vendors have not been added to the system. Conducting tests of programs (option D) is important to verify that programs function as intended, but it is not directly relevant to testing the vendor master file.

Question 14

To ensure that goods and services acquired are for authorized company purposes, and to help acquire only needed items
A) receiving reports should be independently signed and reconciled to the purchase order.
B) proper authorization for acquisitions and changes to the master file should take place.
C) purchase requisitions should be approved and matched to purchase orders.
D) account allocations of vendor invoices should be carefully checked.

Accepted Answer

The answer of To ensure that goods and services acquired...

Question 15

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 otherwise permanently labelled and maintaining a subsidiary ledger will help in identifying and tracking the physical assets in case of theft. Assigning computers to specific individuals or areas and using access controls may be helpful in preventing unauthorized access, but they do not address the issue of physical theft.

Question 16

An important control in the accounts payable and information systems departments is to require that those personnel who record acquisitions do not have access to
A) lists of vendors' names and addresses.
B) cash, marketable securities, and other assets.
C) vendors' price lists.
D) the accounts payable master file.

Accepted Answer

Separating the duties of recording acquisitions from the access to cash, marketable securities, and other assets helps prevent fraud and errors by ensuring that the person who records transactions does not have the ability to manipulate or misappropriate assets.

Question 17

Before a new supplier is added into the supplier master file (or the purchasing master file), the company should
A) conduct a credit check on the new supplier.
B) have the supplier detail matched against the invoice detail.
C) ask the purchasing manager to verify the authenticity of the supplier.
D) have the accounting department enter the necessary detail about the supplier.

Accepted Answer

Conducting a credit check on the new supplier helps to determine their financial stability and creditworthiness. This reduces the risk of doing business with a supplier who may default on payment or go bankrupt. The other options listed are also important, but conducting a credit check is crucial for identifying potential financial risks.

Question 18

A document identifying the description, supplier, 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 identifies the specific goods or services being ordered and includes details such as the supplier, quantity, price, and delivery date. It is a formal document that serves as a contract between the buyer and seller. A purchase requisition is a request for a purchase order, but it does not include all the details and may require approval before a purchase order is created. A receiving report is a document used to confirm that goods have been received as specified in the purchase order, and it is typically created after the purchase order has been fulfilled. A purchases catalogue is a list of items that a company regularly purchases, but it is not as specific as a purchase order.

Question 19

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 a formal document issued by a buyer indicating the types, quantities, and agreed prices for products or services that a vendor will provide to the buyer. It is considered an offer to buy as it sets out the terms of the transaction, and once accepted by the vendor, it becomes a binding contract between the two parties.

Question 20

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 a common fraud in the acquisitions area. This allows the perpetrator to steal the funds without being detected as the vendor and account do not exist. The other options listed are also potential fraud schemes but are less common.

Quiz 13: Audit of the Acquisition and Payment Cycle

When automatic purchase orders are generated, to help make sure that goods are ordered for products that the company still needs, the company should

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

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

After the supplier master file data has been entered, to best improve internal controls the

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

Segregation of duties has an important role in providing for good quality internal controls. Which of the following segregation of duties improve controls over the inventory and distribution cycle?

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

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?

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 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?

ZyCo has recently converted to a new online accounts payable system. To test that only authorized vendors have been converted to the vendor master file (occurrence) , the auditor would

To ensure that goods and services acquired are for authorized company purposes, and to help acquire only needed items

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

An important control in the accounts payable and information systems departments is to require that those personnel who record acquisitions do not have access to

Before a new supplier is added into the supplier master file (or the purchasing master file) , the company should

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

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

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