Question 1

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

Accepted Answer

The acquisition and payment cycle is focused on the purchase of goods or services and the payment of those goods or services. The major balance sheet account involved in this cycle is accounts payable, which represents the amounts owed to vendors or suppliers for goods or services received but not yet paid for. Choices B, C, and D are not as directly related to the acquisition and payment cycle; ordinary shares are an equity account, purchases are an income statement account, and merchandise inventory represents the cost of goods available for sale but not yet sold.

Question 2

Once the auditor has decided on procedures, the acquisitions and cash payments tests are typically performed:

Accepted Answer

Performing the acquisitions and cash payments tests concurrently achieves efficiency without reducing the effectiveness of the tests. It allows the auditor to cover more ground in less time, without sacrificing the quality of the tests.

Question 3

Which document indicates a reduction in the amount owed to a vendor because of returned goods?

Accepted Answer

A

Question 4

When goods are received, adequate control requires examination for:

Accepted Answer

Adequate control requires examination for all of the above factors, including quantity, description, and condition. This helps ensure that the goods received match the order placed, are not damaged, and are suitable for use or resale. Failing to examine all three factors could result in errors, losses, or customer dissatisfaction.

Question 5

Why is inherent risk often assessed as relatively high for inventory?

Accepted Answer

All of the above factors contribute to the inherent risk associated with inventory. Potential obsolescence means that inventory may lose value quickly, complex pricing makes it difficult to accurately value inventory, and having multiple storage locations increases the risk of errors or loss.

Question 6

Necessary controls in the accounts payable and information technology departments include:

Accepted Answer

All of the above controls are necessary to ensure proper management and safeguarding of assets in the accounts payable and information technology departments. Adequate documenting and record keeping helps prevent errors and fraudulent activity, while independent checks on performance increase accountability and transparency. Separation of duties, such as ensuring personnel who record transactions do not have access to assets, reduces the risk of theft or misuse of company resources.

Question 7

Matching the vendor's invoice, the purchase order, and the receiving report normally should be the responsibility of the:

Accepted Answer

Matching the vendor's invoice, the purchase order, and the receiving report is typically the responsibility of the accounts payable department, as they are responsible for ensuring that the company is paying the correct vendor for the correct goods or services received. The treasury function typically oversees cash management and forecasting, the warehouse receiving function is responsible for physically receiving and storing goods, and the purchasing function is responsible for selecting and negotiating with vendors.

Question 8

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:

Accepted Answer

By examining supporting documentation by an authorized person before the signing of cheques, the auditor can ensure that duplicate payments are not made. This control procedure provides an additional layer of approval before payment is made, reducing the risk of errors. The use of a limit or reasonableness test may help identify unusual payments, but it would not necessarily prevent duplicate payments. Prenumbering of receiving reports and payment vouchers can help ensure completeness of documentation, but it does not prevent duplicate payments.

Question 9

For effective internal control purposes, the accounts payable department generally should:

Accepted Answer

Establishing the agreement of the vendor's invoice with the receiving report and purchase order allows for three-way matching, which helps to prevent payment for goods or services that were not received or were not ordered. Stamp, perforate, or otherwise canceling supporting documentation after payment is mailed (A) and obliterating the quantity ordered on the receiving department copy of the purchase order (B) do not provide effective internal control purposes, as they do not ensure accuracy and completeness of the accounts payable process. While ensuring that each requisition is approved as to price, quantity, and quality by an authorized employee (D) is important, it does not specifically address internal control purposes within the accounts payable department.

Question 10

When auditing accounts payable, auditors are usually especially concerned about the:

Accepted Answer

When auditing accounts payable, auditors are usually especially concerned about ensuring completeness and cutoff objectives are met. This means that all accounts payable should be recorded, and the transactions should be recorded in the correct accounting period.

Question 11

A document frequently used by organisations to establish a formal means of recording the controlling acquisitions, and which usually contains a package of documents relevant to the acquisition, is the:

Accepted Answer

A voucher is a document used by a company's accounts payable department to gather and file all of the supporting documents needed to approve the payment of a liability; it is often used in the context of controlling acquisitions.

Question 12

The document that indicates the description and quantity of goods and services received, price, freight charges, discount terms, and date of the billing is the:

Accepted Answer

The vendor's invoice is the document that includes all the details such as the description and quantity of goods and services received, price, freight charges, discount terms, and the date of the billing.

Question 13

Which one of the following internal accounting control procedures is effective in preventing duplicate payment of vendors' invoices?

Accepted Answer

The answer of Which one of the following internal accounting...

Question 14

Internal control over accounts payable is strengthened when a monthly reconciliation of the vendors' statements with recorded liabilities and the accounts payable master file with the general ledger is performed by:

Accepted Answer

To ensure adequate internal control over accounts payable, it is best to have an independent person perform the monthly reconciliation of vendor statements with the recorded liabilities and accounts payable master file with the general ledger. This helps to prevent any potential conflicts of interest or errors. The auditor and purchasing agent may have other responsibilities or duties that could impact the effectiveness of the internal control.

Question 15

The classes of transactions in the acquisition and payment cycle include acquisition of goods:

Accepted Answer

The acquisition and payment cycle involves not only the acquisition of goods and services, but also the subsequent payments made for these goods and services, as well as any purchase returns and discounts that may occur. Therefore, option D is the best choice.

Question 16

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

Accepted Answer

A purchase order is a document issued by a buyer to a supplier, indicating types, quantities, and agreed prices for products or services the supplier will provide to the buyer.

Question 17

The analytical procedure that requires the auditor to review the list of accounts payable for unusual or non-vendor payables would have the best chance of discovering which possible error?

Accepted Answer

This procedure is aimed at identifying classification errors, such as non-trade liabilities being incorrectly classified as accounts payable, by reviewing for unusual or non-vendor payables.

Question 18

A request by an authorised employee for goods or services is made on the:

Accepted Answer

A purchase requisition is a document used by an authorised employee to request goods or services from the procurement department. A debit note is a document issued by a seller to notify a buyer of a debit transaction, while a purchase order is a document issued by the procurement department to authorize a purchase. The acquisition transaction file is a record of all transactions related to the acquisition of assets, goods, or services.

Question 19

The test of transactions, which requires 'compare paid cheques with the related acquisitions journal and cash payments journal', satisfies which transaction-related audit objective for cash payments?

Accepted Answer

Comparing paid cheques with the related acquisitions journal and cash payments journal helps ensure that the amounts recorded in the journals accurately reflect the actual cash payments made, thus satisfying the accuracy objective.

Question 20

Receipt of ordered materials by the receiving department will generate the completion of a form called the:

Accepted Answer

The form generated upon receipt of ordered materials by the receiving department is called a receiving report, which documents the quantity, item description, and condition of the materials received. The other options (A, B, D) do not accurately describe the document generated upon receipt of materials.

Quiz 15: Audit of transaction cycles and financial statement balances I