Question 1

The principal business objectives of the purchasing process are acquiring goods and services and paying for those goods and services.

Accepted Answer

The primary goals of the purchasing process are to acquire the goods and services required by the organization and to pay for them in a timely and cost-effective manner.

Question 2

Accounts payable confirmations are used less frequently by auditors than accounts receivable confirmations.

Accepted Answer

Accounts payable confirmations are typically less useful in detecting misstatements and fraud compared to accounts receivable confirmations, as invoices and other documentation can provide more reliable evidence for this account. Therefore, auditors may use accounts payable confirmations less frequently.

Question 3

A purchase transaction usually begins with the preparation of a purchase order.

Accepted Answer

False

Question 4

The cutoff assertion for accounts payable includes:

Accepted Answer

The cutoff assertion for accounts payable focuses on ensuring that all accounts payable are recorded in the correct accounting period. This means that transactions that occurred before the end of the period but were not recorded until after should be included in the accounts payable balance. It is important to ensure that the financial statements accurately reflect the company's liabilities, but this falls under the accuracy assertion. The completeness and classification assertion are also important for accounts payable, but they are not specifically related to the cutoff assertion.

Question 5

After the controls are tested, the auditor sets the achieved level of control risk.

Accepted Answer

After testing the controls, the auditor assesses the achieved level of control risk, taking into consideration the effectiveness of the controls in mitigating the assessed risk of material misstatement. This assessment helps the auditor to determine the nature, timing, and extent of further audit procedures.

Question 6

The purchase journal is referred to as a check register.

Accepted Answer

The purchase journal and check register are two separate accounting records. The purchase journal records all purchases made on credit while the check register records all check disbursements.

Question 7

A debit memo:

Accepted Answer

A debit memo is a document issued by a vendor to reduce the amount due on an accounts payable balance. This can occur when a vendor refunds an overpayment, grants a discount, or makes an adjustment to an invoice. In all cases, the debit memo reduces the outstanding balance on the accounts payable account.

Question 8

The existence assertion for accounts payable includes:

Accepted Answer

The existence assertion for accounts payable focuses on verifying that the recorded liabilities actually exist and are legitimate obligations of the company.

Question 9

The accounts payable department is responsible for ensuring that all vendor invoices, cash disbursements, and adjustments are recorded in the accounts payable records.

Accepted Answer

The statement is true. The accounts payable department is responsible for recording all vendor invoices, cash disbursements, and adjustments related to accounts payable.

Question 10

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

Accepted Answer

The accounts payable department's main role is to process and pay invoices received from suppliers. Therefore, they do not need to ensure that the goods have been received by the party requesting the goods, which is usually the purchasing department. This responsibility falls on the receiving department or the purchasing department. The accounts payable department only needs to verify the purchase order, compare the invoice price to the purchase order price, ensure that the purchase has been properly authorized, and compare the quantity ordered to the quantity purchased.

Question 11

Which of the following accounts is not affected by cash disbursement transactions?

Accepted Answer

Purchase returns account is not directly affected by cash disbursement transactions. Cash disbursements typically involve the payment of cash from the company to settle obligations such as accounts payable or to take advantage of purchase discounts, but they do not directly involve the recording of purchase returns. Purchase returns are transactions where goods are returned to the supplier, which may eventually affect cash flows indirectly through adjustments in future payments or receivables, but the account itself is not directly impacted by the cash disbursement.

Question 12

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all:

Accepted Answer

Receiving reports document the receipt of merchandise by the company, making them the appropriate population for testing the completeness of accounts payable by verifying that all received goods are recorded.

Question 13

Product costs should be matched directly with specific transactions and are recognized upon recognition of revenue.

Accepted Answer

Product costs are directly associated with specific transactions, typically the sale of goods, and are recognized as an expense when the related revenue is recognized, adhering to the matching principle in accounting.

Question 14

Analytical procedures can be used to examine the reasonableness of accounts payable and accrued expenses.

Accepted Answer

Analytical procedures involve analyzing relationships and trends in financial data to identify significant fluctuations or anomalies. By applying analytical procedures to accounts payable and accrued expenses, auditors can evaluate the reasonableness of these balances by comparing them to historical data, industry benchmarks, or other relevant metrics. For example, if accounts payable have increased significantly from the prior year, the auditor may investigate whether the company has had to rely more heavily on trade credit due to cash flow issues or whether there are any potential misstatements in the accounts. Therefore, analytical procedures can be a useful tool for auditors to assess accounts payable and accrued expenses during the audit process.

Question 15

In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?

Accepted Answer

Vouching a sample of entries in the voucher register to supporting documents would test whether the recorded purchases actually occurred, supporting the occurrence assertion. Completeness would involve testing whether all purchases were recorded, accuracy would involve testing whether the amounts recorded were accurate, and classification would involve testing whether the purchases were properly categorized.

Question 16

A product cost is:

Accepted Answer

Product cost is recognized in the period during which related revenue is recognized. This is part of the matching principle in accounting where expenses are recognized in the same period as the revenue they help generate.

Question 17

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

Accepted Answer

Unrecorded liabilities are expenses that have been incurred but not yet recorded in the accounting system. Unpaid vendor invoices and receiving reports are documents related to the purchase of goods or services where there may be a delay in recording the liability. As a result, reviewing unpaid vendor invoices and receiving reports is the best choice to identify unrecorded liabilities. Shipping records and bills of lading are documents related to the shipment of goods, and unmatched sales invoices refer to revenue recognition, which is not directly related to unrecorded liabilities.

Question 18

Because of the low volume of purchase return transactions, the auditor normally does not test the controls associated with these transactions.

Accepted Answer

Auditors often focus on areas with higher risk or materiality, and low volume transactions may not significantly impact the financial statements, leading auditors to prioritize other areas.

Question 19

A receiving report is used to document the ordering of goods.

Accepted Answer

A receiving report is used to document the receipt of goods, not the ordering of goods. The ordering of goods is usually documented in a purchase order.

Question 20

An important primary purpose of the auditor's review of the entity's procurement system should be to determine the effectiveness of the activities to protect against:

Accepted Answer

The primary purpose of the auditor's review of the entity's procurement system is to determine the effectiveness of the activities to protect against unauthorized persons issuing purchase orders. This is because unauthorized purchase orders can lead to fraudulent activity and increase the risk of financial loss. While the other options listed may also be important considerations in a procurement system review, they are not the primary focus.

Quiz 11: Auditing the Purchasing Process