Question 1

The balance-related audit objective realizable value is not applicable when auditing accounts payable.

Accepted Answer

Realizable value is a concept that applies to accounts receivable, inventory, and other assets, but not to accounts payable. Therefore, the balance-related audit objective of realizable value is not applicable when auditing accounts payable.

Question 2

The "rights "aspect of the "rights and obligations" objective is not applicable to liabilities.

Accepted Answer

The "rights and obligations" objective refers to the ability to exercise rights and fulfill obligations. Liabilities do not involve rights, only obligations. Therefore, the "rights" aspect of the objective is not applicable to liabilities.

Question 3

A company recorded an acquisition of merchandise and its related liability,but failed to include the merchandise in ending inventory.The effect on the financial statements was to
A)understate liabilities.
B)understate net income.
C)overstate net income.
D)have no impact on the financial statements since the errors cancel each other out.

Accepted Answer

The answer of A company recorded an acquisition of merchandise...

Question 4

Auditors primarily emphasize the understatement of liabilities in the audit of accounts payable because they are concerned about potential legal liability.

Accepted Answer

Auditors are concerned about potential legal liability if they fail to detect significant understatement of liabilities, particularly accounts payable. Understated liabilities could result in the overstatement of net income, which could mislead investors, creditors, and other interested parties. Therefore, auditors need to ensure that all liabilities are properly recognized and measured in accordance with accounting standards.

Question 5

Describe the audit procedures typically used to test for out-of-period liabilities (also referred to as the search for unrecorded accounts payable).

Accepted Answer

The answer of Describe the audit procedures typically used to...

Question 6

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?
A)The internal accounting control over accounts payable is effective,and there is sufficient evidence on hand to minimize the risk of a material misstatement.
B)The confirmation response is expected to be favorable,and accounts payable balances are of immaterial amounts.
C)The creditor statements are not available and internal control over payables is deficient.
D)The majority of accounts payable balances are with associated companies.

Accepted Answer

When creditor statements are not available and internal control over payables is deficient, it is advisable for the auditor to confirm accounts payable with creditors. This helps to obtain external evidence to support the accounts payable balances and to detect any material misstatements. Confirming accounts payable in other circumstances may not provide significant additional evidence and may not be cost-effective.

Question 7

The auditor is performing substantive tests of balances for accounts payable.What documentation would provide the best evidence for the ending balance?
A)vendors' invoices
B)vendors' statements
C)receiving reports
D)purchase orders

Accepted Answer

Vendors' statements provide a direct confirmation of the amounts owed to vendors at the balance sheet date, offering strong evidence for the ending balance of accounts payable.

Question 8

Auditors examine supporting documentation for cash disbursements subsequent to the balance sheet date in order to determine whether the cash disbursement was for a current period liability.
Describe at least two audit procedures the auditor would perform to provide evidence that the cash disbursement was made for a current period liability.

Accepted Answer

The answer of Auditors examine supporting documentation for cash disbursements...

Question 9

The documents typically used to reconcile the balance on the accounts payable list with the confirmation or vendor's statements include all of the following except for
A)receiving reports.
B)vendor's invoices.
C)sales invoices.
D)cancelled checks.

Accepted Answer

Sales invoices are not relevant to reconciling the balance on the accounts payable list with a vendor's statement as they represent transactions made by the company and not by the vendor. The documents that are essential for this reconciliation include vendor's invoices, cancelled checks, and receiving reports.

Question 10

Which of the following is most reliable for verifying the correct balance of accounts payable?
A)vendors' invoices
B)vendors' statements
C)confirmations
D)bills of lading

Accepted Answer

Confirmations are the most reliable method for verifying the correct balance of accounts payable because they directly confirm the amount owed with the vendor. Vendors' invoices and bills of lading can be used to verify individual transactions, but may not give a complete picture of the overall balance. Vendors' statements can also be used, but may not always be up-to-date or accurate.

Question 11

When determining sample sizes for accounts payable tests,
A)sample sizes rarely vary from audit to audit.
B)auditors must try to ensure that the population includes all potential payables.
C)defining the population is a simple procedure.
D)all of the above are correct.

Accepted Answer

Determining sample sizes for accounts payable tests requires auditors to ensure that the population includes all potential payables, which can vary from audit to audit depending on the company's activities during the year. However, defining the population may not always be a straightforward process. Sample sizes may also vary based on the level of risk and materiality associated with the accounts payable balance. Therefore, option A is incorrect.

Question 12

To test for overstatement cutoff amounts when auditing accounts payable,the auditor should trace receiving reports issued before year-end to related vendors' invoices to make sure they are not recorded as accounts payable.

Accepted Answer

To test for overstatement cutoff amounts, the auditor should trace vendor invoices received before year-end to related accounts payable recorded in the accounts. This helps ensure that accounts payable are recorded in the correct period and that they are not overstated by including transactions from the subsequent period.

Question 13

________ is a balance-related audit objective that is not applicable to liabilities.
A)Existence
B)Accuracy
C)Detail tie-in
D)Realizable value

Accepted Answer

Realizable value is a balance-related audit objective that is applicable to assets, but not applicable to liabilities. This objective focuses on whether the value assigned to an asset is reasonable and can be realized if the asset is sold. Liabilities, on the other hand, are obligations or debts owed by a company, and their value is typically based on the amount owed at a specific point in time.

Question 14

Auditor confirmation of accounts payable balances at the balance sheet date may not need to be performed by the auditor because
A)this is a duplication of cutoff tests.
B)there is likely to be other reliable external evidence available to support the balances.
C)accounts payable balances at the balance sheet date may not be paid before the audit is completed.
D)correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment.

Accepted Answer

Auditor confirmation of accounts payable balances at the balance sheet date may not need to be performed by the auditor because there is likely to be other reliable external evidence available to support the balances. This can include vendor invoices, purchase orders, and other documentation that supports the existence and accuracy of the balances. While cutoff tests may be performed as part of the audit process, they are not a duplication of confirmation procedures. Legal action by vendors for nonpayment would not provide complete assurance about the completeness of accounts payable balances, and correspondence with the client's attorney is not a substitute for obtaining direct confirmation from vendors. However, the possibility that accounts payable balances may not be paid before the audit is completed is a legitimate concern that should be addressed by the auditor.

Question 15

The auditor is performing tests of transactions for individual accounts payable transactions with vendors.Which document provides more reliable information about individual transactions with vendors?
A)receiving report
B)vendors' invoices
C)vendors' statements
D)purchase orders

Accepted Answer

Vendors' invoices provide detailed information about individual transactions with vendors, including the amount due, the terms of payment, and the items purchased. Receiving reports confirm that goods or services were received but do not provide as much detail as the vendors' invoices. Vendors' statements provide a summary of all transactions with a particular vendor but do not provide detailed information about each individual transaction. Purchase orders provide information about what was ordered and the terms of the order, but do not provide information about the actual transaction or payment.

Question 16

When auditors examine vendors' statements or receive confirmations,there must be a reconciliation of the statement or confirmation with the
A)accounts payable list.
B)vendors' invoices.
C)purchase orders.
D)receiving reports.

Accepted Answer

When auditors examine vendors' statements or receive confirmations, there must be a reconciliation of the statement or confirmation with the accounts payable list to ensure accuracy and completeness. While vendors' invoices, purchase orders, and receiving reports are all important documentation for accounts payable, they do not directly relate to the reconciliation process with vendors' statements or confirmations.

Question 17

The auditor gets highly reliable evidence about individual transactions by examining
A)vendors' invoices.
B)vendors' statements.
C)confirmations of accounts payable balances.
D)detailed inventory counting instructions.

Accepted Answer

The answer of The auditor gets highly reliable evidence about...

Question 18

The overall objective in the audit of accounts payable is to determine whether accounts payable
A)are fairly stated and properly disclosed.
B)are overstated.
C)are understated.
D)are accurately stated.

Accepted Answer

The overall objective in the audit of accounts payable is to determine whether they are fairly stated and properly disclosed. This means that the amount of accounts payable recorded in the financial statements is accurate and complete, and that all necessary disclosures related to accounts payable have been made. The objective is not to determine whether accounts payable are overstated, understated, or accurately stated, but rather to ensure that they are fairly stated and properly disclosed.

Question 19

Vendors' statements and vendors' invoices are both relatively reliable evidence because they
A)come directly to the auditor without being in client's possession.
B)originate from a third party.
C)validate the effectiveness of the control system.
D)are compared to and reconciled with sales invoices.

Accepted Answer

Both vendors' statements and vendors' invoices originate from a third party and are therefore considered relatively reliable evidence. This is because they are less likely to be manipulated by the client and are more likely to be accurate. However, the other options are not necessarily true. Vendors' statements and invoices can still be in the client's possession, may not necessarily validate the effectiveness of the control system, and are not always compared to or reconciled with sales invoices.

Question 20

Discuss the circumstances in which it is desirable to send confirmation requests to the client's vendors.

Accepted Answer

The answer of Discuss the circumstances in which it is...

Quiz 18: Audit of the Acquisition and Payment Cycle: Tests of Controls,

The balance-related audit objective realizable value is not applicable when auditing accounts payable.

The "rights "aspect of the "rights and obligations" objective is not applicable to liabilities.

A company recorded an acquisition of merchandise and its related liability,but failed to include the merchandise in ending inventory.The effect on the financial statements was to

Auditors primarily emphasize the understatement of liabilities in the audit of accounts payable because they are concerned about potential legal liability.

Describe the audit procedures typically used to test for out-of-period liabilities (also referred to as the search for unrecorded accounts payable).

Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?

The auditor is performing substantive tests of balances for accounts payable.What documentation would provide the best evidence for the ending balance?

The documents typically used to reconcile the balance on the accounts payable list with the confirmation or vendor's statements include all of the following except for

Which of the following is most reliable for verifying the correct balance of accounts payable?

When determining sample sizes for accounts payable tests,

To test for overstatement cutoff amounts when auditing accounts payable,the auditor should trace receiving reports issued before year-end to related vendors' invoices to make sure they are not recorded as accounts payable.

________ is a balance-related audit objective that is not applicable to liabilities.

Auditor confirmation of accounts payable balances at the balance sheet date may not need to be performed by the auditor because

The auditor is performing tests of transactions for individual accounts payable transactions with vendors.Which document provides more reliable information about individual transactions with vendors?

When auditors examine vendors' statements or receive confirmations,there must be a reconciliation of the statement or confirmation with the

The auditor gets highly reliable evidence about individual transactions by examining

The overall objective in the audit of accounts payable is to determine whether accounts payable

Vendors' statements and vendors' invoices are both relatively reliable evidence because they

Discuss the circumstances in which it is desirable to send confirmation requests to the client's vendors.