Question 1

An internal control narrative indicates that an approved voucher is required to support every check request for payment of merchandise.Which of the following procedures provides the greatest assurance that this control is operating effectively?

Accepted Answer

Selecting and examining canceled checks and ensuring that the related vouchers are dated no later than the checks directly tests whether payments (checks) are made based on approved vouchers, which is the essence of the control being evaluated.

Question 2

Which of the following audit procedures is least likely to detect an unrecorded liability?

Accepted Answer

Analysis and recomputation of depreciation expense is the least likely to detect an unrecorded liability as it is not directly related to liabilities. Option A may detect unrecorded interest expense which is a liability, option C may detect unrecorded accounts payable, and option D may detect unrecorded contingencies or contractual obligations that create a liability.

Question 3

With properly designed internal control,the same employee should not be permitted to:

Accepted Answer

Proper internal control systems aim to segregate duties to prevent fraud and errors. Allowing the same employee to prepare disbursement vouchers and sign checks would combine the authorization of transactions with the custody of assets, violating the principle of segregation of duties and increasing the risk of fraud or misappropriation of funds.

Question 4

The auditor will most likely perform extensive tests for possible understatement of:

Accepted Answer

Auditors perform extensive tests for possible understatement of liabilities to ensure that all obligations of the company are properly recorded. Understating liabilities can make a company appear more financially stable than it actually is, affecting the accuracy of the financial statements.

Question 5

The accounts payable department receives the purchase order form to accomplish all of the following except:

Accepted Answer

The accounts payable department is responsible for processing invoices and ensuring that payments are made in a timely and accurate manner. They are not responsible for ensuring that the party requesting the goods has received them. This is the responsibility of the purchasing or receiving department. The accounts payable department is responsible for verifying the purchase order, comparing the invoice price to the purchase order price, ensuring the purchase had been properly authorized and comparing the quantity ordered to the quantity purchased.

Question 6

Internal control over accounts payable is improved when:

Accepted Answer

Reconciling vendor statements with the accounts payable ledger helps to ensure that all invoices have been accounted for and paid in a timely manner. This also helps to detect any errors or discrepancies in the accounts payable ledger. Obtaining informal bids, requiring an annual trial balance, and making payments upon approval of the purchasing agent are all important internal controls, but they do not necessarily relate specifically to improving control over accounts payable.

Question 7

Unrecorded liabilities are most likely to be found during the review of which of the following documents?

Accepted Answer

Unrecorded liabilities refer to expenses that have been incurred but not yet recorded in the company's books. Unpaid bills are a common source of unrecorded liabilities and reviewing them can help identify such expenses. Shipping records, bills of lading, and unmatched sales invoices may provide information on sales and inventory, but they are not directly related to identifying unrecorded liabilities.

Question 8

To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a separation of which of the following functions?

Accepted Answer

The answer of To avoid potential errors and fraud a...

Question 9

Based on the company and its environment,including its internal control,the auditors assessed the risk of material misstatements to the financial statements,whether due to error or fraud,and designed the nature,timing,and extent of further audit procedures to be performed.
As a result of conducting the above risk assessment procedures,the audit plan for year 2 includes the following changes from the audit plan for year 1.The company has a calendar year-end and operates only on weekdays.
In conducting the audit procedures for the search for unrecorded liabilities,the materiality/scope for this area was assessed by the auditors at $6,000.Adjustments are only recorded for items equal to,or exceeding materiality.The last day of fieldwork is estimated to be February 1,year 3.
For the items reflected in the following check register,which are not recorded in the accounts payable subsidiary ledger at December 31,year 2,determine if each potential liability is recorded in the proper accounting period and also determine the amount that should be journalized,if any.If no action is required,you must enter $0.
For each of the check numbers in the table below,select if any action or adjustment is required. If no action is required,put $0 in the amount column;if an adjustment is needed select the dollar amount.Each selection may be used once,more than once,or not at all.
Check Register

Accepted Answer

The answer of Based on the company and its environment,including...

Question 10

Which of the following could most likely be performed efficiently with data analytics?

Accepted Answer

Data analytics can efficiently identify payables from purchases of goods that do not have evidence of receipt of the goods by analyzing purchase orders, invoices, and receiving reports. This type of analysis can provide insights into potential fraudulent activities or errors in the purchasing process that may have resulted in payments made for goods that were not received. The other options may also benefit from data analytics, but they may require additional manual work and analysis to confirm or identify potential issues.

Question 11

Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger.Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if:

Accepted Answer

If Propex has difficulty reconciling vendors' monthly statements, it suggests that there may be errors or discrepancies in their accounts payable records. Maintaining an accounts payable subsidiary ledger would provide more detailed and organized information, making it easier to identify and correct any issues.

Question 12

Operating control over check signing normally should be the responsibility of the:

Accepted Answer

The Treasurer is typically the highest-ranking official responsible for financial management within a company and thus, the one who should have operating control over check signing. The Chief Accountant may assist in overseeing the process, but the ultimate responsibility lies with the Treasurer. The Secretary and Vice-President of Marketing do not have a direct role in financial management and thus would not typically be responsible for operating control over check signing.

Question 13

When the auditors select a sample from the vouchers payable register at the end of the period and trace them to underlying documents,the auditors are gathering evidence primarily to support that:

Accepted Answer

Tracing vouchers to underlying documents helps verify that the recorded obligations actually occurred before the year-end, ensuring the completeness and accuracy of the financial records.

Question 14

A major concern of the auditors is obtaining evidence about the completeness of recorded accounts payable.
a.Describe the reason that the auditors are concerned with the completeness of accounts payable.
b.Describe three ways in which the auditors establish the completeness of accounts payable.

Accepted Answer

The answer of A major concern of the auditors is...

Question 15

Which of the following tests of details most likely would help an auditor determine whether accounts payable have been misstated?

Accepted Answer

Examining vendor statements for amounts not reported as purchases can help an auditor determine whether accounts payable have been misstated as it would reveal whether there are any unrecorded liabilities owed to vendors which should have been recorded as accounts payable. Option A refers to purchase returns which are a contra account to accounts payable and would not necessarily indicate whether accounts payable have been misstated. Option C refers to customer returns which would not provide information on accounts payable. Option D involves cash received from customers and is not directly related to accounts payable.

Question 16

The auditors may decide to confirm accounts payable on an audit engagement.
a.Describe two reasons why the confirmation of accounts payable is not a presumptively mandatory auditing procedure.
b.Describe the audit circumstances in which the auditors are likely to decide to confirm accounts payable.
c.Describe the types of accounts payable the auditors are likely to select for confirmation.

Accepted Answer

The answer of The auditors may decide to confirm accounts...

Question 17

Which of the following procedures is least likely to be completed before the balance sheet date?

Accepted Answer

The search for unrecorded liabilities is typically performed after the balance sheet date. This is because it involves identifying liabilities that may not have been recorded by the end of the reporting period, which can often only be fully assessed after the period has ended.

Quiz 14: Accounts Payable and Other Liabilities