Question 1

A shipping report is one of the important documents and records used in processing purchase adjustments in traditional or Evaluated Receipts Settlement (ERS) systems.

Accepted Answer

A shipping report is indeed an important document used in processing purchase adjustments in traditional or ERS systems.

Question 2

As inherent risk factors vary from industry to industry, from client to client, and from year to year, each audit should be identical to address unique risks.

Accepted Answer

Each audit should be tailored to address the unique risks specific to the client and the industry, so it should not be identical each time.

Question 3

An entity's purchasing process consists of _______.

Accepted Answer

The purchasing process involves activities related to acquiring goods and services, as well as paying for them. Options B, C, and D are not related to purchasing goods and services.

Question 4

A Cash Disbursements Journal is a daily report showing checks written or electric funds transferred to vendors and amounts paid.

Accepted Answer

The statement is true. A Cash Disbursements Journal is a record of all checks written or electronic funds transferred, along with the amounts paid, to vendors by a company on a daily basis.

Question 5

A Purchase Return Authorization is a form showing the description, quantity, and other data pertaining to the goods the vendor has authorized the purchaser to return.

Accepted Answer

This statement is true as a Purchase Return Authorization is a form that authorizes the return of goods and includes the details of the goods being returned.

Question 6

The purchase cutoff test involves determining that purchase transactions occurring near the balance sheet date are recorded in the proper period.

Accepted Answer

The purchase cutoff test is a test of the completeness and accuracy of the recorded purchase transactions. It involves ensuring that all purchases are recorded in the correct period, and that purchases occurring near the balance sheet date are recorded in the appropriate period. This is important for accurate financial reporting and to avoid misstating the financial statements.

Question 7

The expenditure process is particularly prone to a risk of employee fraud through unauthorized disbursements of cash

Accepted Answer

The expenditure process involves the disbursement of funds, which can be easily targeted by employees for fraudulent activities such as unauthorized cash disbursements. This makes it a high-risk area for fraud.

Question 8

Many frauds can be avoided with strong controls over the vendor master files, determining the appropriateness of support for payments to vendors before recording a liability (voucher), and the willingness to dispute inappropriate items with vendors.

Accepted Answer

This statement is true. Strong controls over vendor master files, pre-approval of payments, and willingness to dispute inappropriate items can help prevent many instances of fraud.

Question 9

An approved vendor master file is a computer file containing pertinent information on vendors and suppliers that have been approved to purchase services from and make payments to.

Accepted Answer

An approved vendor master file is indeed a computer file that contains information on approved vendors and suppliers.

Question 10

The transaction flow in a typical purchases process for a client purchasing goods includes approving purchases, shipping goods, recording purchases and recording accounts payable

Accepted Answer

The typical transaction flow for purchasing goods includes approving purchases, receiving goods, recording purchases, and recording accounts payable. Shipping goods is not part of the purchasing process for the buyer.

Question 11

Electronic Invoice Presentment and Payment (EIPP) systems use an independent third party to settle business to business (B2B) transactions.

Accepted Answer

EIPP systems utilize a third party to facilitate B2B transactions, including settlement and payment processing.

Question 12

Purchasing goods and services and making payments are NOT considered core purchase transactions.

Accepted Answer

Purchasing goods and services and making payments are considered core purchase transactions.

Question 13

A cash disbursements journal is a daily report showing checks written or electronic funds transferred to vendors and amounts paid.

Accepted Answer

A cash disbursements journal does indeed show checks written or electronic funds transferred to vendors and the amounts paid.

Question 14

A voucher is an external document indicating the vendor, the amount due, and payment terms for the purchases received.

Accepted Answer

A voucher is an internal document or file used by a company's accounts payable department to collect and file all of the documents needed to approve the payment of a liability; it is not an external document indicating vendor details and payment terms.

Question 15

An entity's purchasing process consists of activities related to the acquisition of, and payment for, goods and services.

Accepted Answer

This statement accurately describes an entity's purchasing process.

Question 16

A strong tone at the top about the importance of accurate financial reporting encourages the understatement of expenses and liabilities.

Accepted Answer

A strong tone at the top about the importance of accurate financial reporting actually discourages the understatement of expenses and liabilities, as it creates a culture of transparency and accountability.

Question 17

The purchasing or procurement process involves selecting customers, establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities.

Accepted Answer

The purchasing or procurement process involves selecting vendors/suppliers (not customers), establishing payment terms, negotiating contracts, purchasing goods, receiving goods, and recording of purchases and payment of liabilities.

Question 18

The first category of misstatements that is relevant to the purchasing and payroll cycles is "expense (payroll, selling, general, administration, other) recording issues."

Accepted Answer

This statement is true. Misstatements related to expense recording can affect both the purchasing and payroll cycles.

Question 19

Prior experience in accounts payable turnover days combined with knowledge of current purchases can be useful in estimating current payables.

Accepted Answer

Prior experience in accounts payable turnover days helps to understand the typical timeframe between purchasing goods and paying for them. This, combined with knowledge of current purchases, can provide a basis for estimating current payables.

Question 20

Many Evaluated Receipt Systems (ERS) use Electronic Invoice Presentment and Payment (EIPP) systems.

Accepted Answer

Many ERSs do indeed use EIPP systems, as these technologies are often complementary in terms of automating and streamlining the procurement and payment processes for businesses. EIPP systems allow invoices to be electronically sent, received, reviewed, approved, and paid, which can save time and improve accuracy for both buyers and suppliers. ERSs, meanwhile, help automate the receipt and verification of deliveries and associated payments, which can further enhance procurement efficiency and reduce errors.

Quiz 12: Auditing the Purchases Cycle and Payroll Cycle