Question 1

In Cassette 12.3 (Retread Tires), J.Lock stole money by selling the company's new tires and replacing them with retread tires.The key weakness in the control system failed to prevent or detect this scheme to continue was that
A)Lock often prepared purchase orders.
B)Lock was the chief accountant.
C)The president of the company signed cheques without reviewing any supporting documentation.
D)No one noticed the invoices for the retread tires.

Accepted Answer

The president of the company signing cheques without reviewing any supporting documentation was a key weakness, as it allowed fraudulent activities to go undetected.

Question 2

A company's internal control system requires that an approved payables voucher, supported by a purchase order and a receiving report accompany every cheque requisition.To determine whether cheques are being issued for unauthorized expenditures, an auditor is most likely to select items for testing from the population of all
A)Purchase orders.
B)Cancelled cheques.
C)Receiving reports.
D)Approved vouchers.

Accepted Answer

Cancelled cheques are the best source to test for unauthorized expenditures because they represent actual payments made, and the auditor can trace them back to the supporting documentation to verify authorization.

Question 3

Explain why auditors must put greater emphasis on the completeness assertion when auditing accounts payable.Contrast this with the audit of assets.

Accepted Answer

The answer of Explain why auditors must put greater emphasis...

Question 4

Identify situations when the auditor should use accounts payable confirmations and discuss whether they are required to use them.

Accepted Answer

The answer of Identify situations when the auditor should use...

Question 5

When performing procedures to search for unrecorded liabilities, the auditor can obtain several sources of audit evidence; for example, documents, files, and enquiries of management and clerical personnel.
Required:
List at least five, but no more than eight, sources of audit evidence that could be accumulated in the search for unrecorded liabilities.(Do not write procedures or reasons for using the sources.)

Accepted Answer

The answer of When performing procedures to search for unrecorded...

Question 6

Why are payables vouchers marked "paid" after cheques have been issued in payment of vendor invoices?

Accepted Answer

The answer of Why are payables vouchers marked "paid" after...

Question 7

The statement that "all purchase orders must be supported by properly approved purchase requisitions" is a specific example of which general objective?
A)Validity.
B)Completeness.
C)Authorization.
D)Classification.

Accepted Answer

This statement is an example of the authorization objective, as it ensures that all purchase orders are approved and authorized through the proper channels before being processed.

Question 8

Auditors can perform detail tests of control audit procedures to determine whether the client throughout the period of intended reliance is actually performing controls that are said to be in place and operating.What two characteristics must a detail test of controls audit procedure have in order to be successful?

Accepted Answer

The answer of Auditors can perform detail tests of control...

Question 9

Jack PA is the auditor of Jill Corporation.Jack followed last year's working papers in selecting accounts payable to confirm.Jack mailed confirmations to 50 of Jill's 200 suppliers.The sample was designed to select accounts with the largest balances.Jack and Jill spent a lot of time reconciling minor differences between the confirmation amounts and the accounts payable trial balance.
Required:
Do you believe that Jack should have used the same sample design for accounts payable confirmations this year? If not, what suggestions can you give to improve the design?

Accepted Answer

The answer of Jack PA is the auditor of Jill...

Question 10

Identify the accounts payable audit objectives that the auditors must consider in determining the audit procedures to be performed.

Accepted Answer

The answer of Identify the accounts payable audit objectives that...

Question 11

Which of the following accounts would the auditor review in order to obtain reasonable assurance that additions to the equipment (fixed asset) account are not understated?
A)Amortization expense.
B)Gain on disposal of equipment.
C)Accounts payable.
D)Repairs and maintenance expense.

Accepted Answer

Repairs and maintenance expenses are directly related to fixed assets and would be reviewed by the auditor to ensure that any additions to the equipment account are properly recorded and not understated. Amortization expense and gain on disposal of equipment relate to the accounting treatment of existing fixed assets, while accounts payable relates to the company's liabilities.

Question 12

What issues must the auditor consider if the client has inventory located away from the client's place of business?

Accepted Answer

The answer of What issues must the auditor consider if...

Question 13

Briefly explain why the auditor's inventory tests counts are conducted in two directions.

Accepted Answer

The answer of Briefly explain why the auditor's inventory tests...

Question 14

In Cassette 12.4 (Amortize the "Drum" Slowly), Candid Production overvalued net assets by taking too little amortization.Which of the following was the lesson for the auditors in this case?
A)Check the client's calculations regardless of how simple they appear.
B)Understand special industry accounting before accepting an engagement.
C)Maintain professional skepticism when evaluating a client's accounting estimates.
D)Always investigate a client's background before accepting an engagement.

Accepted Answer

The lesson for auditors was to maintain professional skepticism when evaluating a client's accounting estimates, as overvaluation can occur through understated amortization.

Question 15

A good environmental control over purchases and payables would be to have:
A)The accounting department independent of the sales department.
B)The purchasing department independent of the receiving department.
C)The information systems department independent of the accounting department.
D)The sales department independent of the shipping department.

Accepted Answer

Separating the purchasing department from the receiving department helps prevent fraud and errors by ensuring that the person ordering goods is not the same person receiving them, thus providing a check and balance system.

Question 16

If a client uses the cycle method of counting inventory and never takes "wall to wall" inventory on a single date, what must the auditor do in order to avoid requesting the client to take a full inventory count?

Accepted Answer

The answer of If a client uses the cycle method...

Question 17

An auditor wants to perform tests of controls on a client's cash disbursement procedures.If the control procedures leave no audit trail or documentary evidence, the auditor is most likely to test the procedures by
A)Confirmation and observation.
B)Observation and inquiry.
C)Analytical procedures and confirmation.
D)Inquiry and analytical procedures.

Accepted Answer

The answer of An auditor wants to perform tests of...

Quiz 12: Purchases, Payables, and Payments Processtrue

In Cassette 12.3 (Retread Tires) , J.Lock stole money by selling the company's new tires and replacing them with retread tires.The key weakness in the control system failed to prevent or detect this scheme to continue was that

Explain why auditors must put greater emphasis on the completeness assertion when auditing accounts payable.Contrast this with the audit of assets.

Identify situations when the auditor should use accounts payable confirmations and discuss whether they are required to use them.

Why are payables vouchers marked "paid" after cheques have been issued in payment of vendor invoices?

The statement that "all purchase orders must be supported by properly approved purchase requisitions" is a specific example of which general objective?

Identify the accounts payable audit objectives that the auditors must consider in determining the audit procedures to be performed.

Which of the following accounts would the auditor review in order to obtain reasonable assurance that additions to the equipment (fixed asset) account are not understated?

What issues must the auditor consider if the client has inventory located away from the client's place of business?

Briefly explain why the auditor's inventory tests counts are conducted in two directions.

In Cassette 12.4 (Amortize the "Drum" Slowly) , Candid Production overvalued net assets by taking too little amortization.Which of the following was the lesson for the auditors in this case?

A good environmental control over purchases and payables would be to have:

If a client uses the cycle method of counting inventory and never takes "wall to wall" inventory on a single date, what must the auditor do in order to avoid requesting the client to take a full inventory count?

An auditor wants to perform tests of controls on a client's cash disbursement procedures.If the control procedures leave no audit trail or documentary evidence, the auditor is most likely to test the procedures by