Question 1

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 2

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" relates to completeness, as it focuses on ensuring that all transactions related to acquisitions are recorded. The other objectives (occurrence, classification, and accuracy) relate to different aspects of transaction recording and reporting.

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

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 the auditor in verifying liability balances is to detect any understated or omitted liabilities. This is because understating or omitting liabilities can inflate a company's financial position and consequently affect its financial statements. The other options (A, B, and D) are also important but are not the primary focus of the auditor in verifying liability balances.

Question 5

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 helps to ensure that the calculations related to the discounts are accurate, which satisfies the objective of accuracy. This test does not address occurrence, completeness, posting, or summarization.

Question 6

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

Since errors and irregularities in the acquisition and payment cycle can significantly affect earnings and mislead investors, the auditor will set a low tolerable exception rate for attribute testing in this cycle. A high exception rate would indicate a higher risk of material misstatements, which is not acceptable in this cycle. An average rate would not sufficiently address the risks associated with this cycle. The specific percentage for the tolerable exception rate may vary depending on the auditor's assessment of the risks and materiality of the cycle.

Question 7

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 that requires approval for new vendors and changes to vendor files reduces the risk of unauthorized vendors being added to the system. This satisfies the occurrence objective, which ensures that all recorded transactions actually took place.

Question 8

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 9

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 provides a clear record of which cheque the documents were used to support, and makes it difficult for the documents to be reused for another payment. Shredding the documents may be a common practice, but it does not provide a clear record and could potentially lead to issues if there is a need to refer back to the supporting documents. Transferring possession of the documents to a bank vault or off-site facility may be excessive and unnecessary for most small to medium-sized businesses.

Question 10

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

Expenses from year to year are generally relatively stable, making it easier to spot significant deviations or anomalies when comparing current expenses to those of prior years. This stability aids in the effectiveness of using analytical procedures for accounts payable.

Question 11

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 requiring approval of acquisitions at the proper level ensures that all acquisitions are legitimate and actually occurred, satisfying the occurrence objective of internal control.

Question 12

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

Tests of controls in the areas of acquisitions and cash disbursements deal primarily with the testing of the effectiveness of internal controls over financial reporting. Therefore, it is common to use attributes sampling to determine whether internal controls are operating as intended. Attributes sampling is a statistical sampling method used to measure the rate of occurrence of a certain characteristic in a population. This method is particularly effective when assessing the effectiveness of internal controls, such as the effectiveness of a control to prevent unauthorized disbursements. Therefore, the best choice is A) attributes sampling.

Question 13

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 that requires an independent verification of calculations and amounts aims to ensure the accuracy of financial information. This control helps to prevent errors or inaccuracies in financial records. Therefore, the objective that is satisfied by this control is accuracy.

Question 14

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 15

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 increase the risk of the accounts payable and acquisition cycle, as they may involve higher likelihood of fraud, misstatement or conflicts of interest. Good quality internal controls for cash handling and the use of packaged software for accounting both decrease inherent risk, while the use of clear, standard terms when negotiating supplier discounts does not have a direct impact on inherent risk.

Question 16

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

The internal control mentioned in the question ensures that business expenses are recorded for goods and services that benefit the entity being audited, which satisfies the control objective that recorded acquisitions are for goods and services received. The other choices are not directly related to preventing the inclusion of expenses that benefit management or employees instead of the entity.

Question 17

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 choice to test completeness of the vendor balances is to agree vendor file details for each vendor from the old (batch) system to the new (online) system on a test basis. This will ensure that all the vendor balances have been accurately converted to the new system. Conducting cutoff tests for receiving reports and vendor invoices will only ensure accuracy of timing (cut-off) of transactions. Testing programs will ensure that the system functions as designed, but will not directly test completeness of vendor balances.

Question 18

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 19

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 prenumbering and accounting for receiving reports ensures that all reports have been received and accounted for, thereby satisfying the completeness objective of internal control.

Question 20

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 the need for extensive tests of details of balances, which is the option C. These tests are typically required when there is a higher risk of material misstatements in the accounts payable balance. If internal controls are effective, the auditor can rely on them to ensure the completeness and accuracy of the accounts payable balance, and reduce the amount of testing needed. However, controls testing and substantive testing of transactions will still be required, but they will be more limited in scope. The other options (tests of controls, confirmations, and analytical procedures) may still be necessary, regardless of the effectiveness of internal controls.

Quiz 13: Audit of the Acquisition and Payment Cycle

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

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

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

The test of transactions that requires the recomputing of cash discounts 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 that requires "new vendors and changes to vendor file be approved" satisfies the objective of

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?

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

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

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

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

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

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

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 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

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