Question 1

Tracing copies of sales invoices to shipping documents will provide evidence that all:

Accepted Answer

Tracing copies of sales invoices to shipping documents will provide evidence that the billed sales were actually shipped to customers. This ensures that the revenue recognition is appropriate and that the company is only recording revenue for sales that have been shipped.

Question 2

An internal control questionnaire indicates that an approved receiving report is required to accompany every cheque request for payment of merchandise. Which of the following tests of control provides the greatest assurance that this control is operating effectively?

Accepted Answer

This test ensures that the receiving report, which confirms the receipt of goods, is present and dated before the payment is made, verifying that the control of requiring a receiving report before payment is functioning effectively.

Question 3

To check the accuracy of the accounting records with regards to the recorded hours worked, an auditor would ordinarily compare time clock cards with:

Accepted Answer

Comparing time clock cards with time recorded in the payroll register is the best choice for checking the accuracy of accounting records with regards to recorded hours worked. This comparison ensures that the hours worked by employees have been accurately recorded and that correct pay is issued to them. Shop job time tickets and labour variance reports are related to production activities and do not provide relevant information in this context. Personnel records contain information related to employee details and do not provide data related to hours worked.

Question 4

When goods are received, the receiving clerk should match the goods with:

Accepted Answer

The receiving clerk should match the goods with the vendor shipping document and the purchase order to ensure that the correct items and quantities have been received as ordered.

Question 5

Which of the following is a test of controls for the control assertion of completeness for revenue?

Accepted Answer

Tracing shipping documents to sales invoices and the sales journal can test the completeness assertion for revenue controls by ensuring that all sales are recorded in the system. This test checks whether all goods shipped were actually invoiced and entered into the system. Option A is a test for the occurrence assertion, option B is a test for the accuracy assertion, and option D is a test for the valuation assertion.

Question 6

An audit client erroneously recorded a large purchase twice. Which of the following tests of control measures would be most likely to detect this error in a timely and efficient manner?

Accepted Answer

Reconciling vendors' monthly statements with subsidiary payable ledger accounts would likely detect the error of recording a purchase twice, as the reconciliation process would reveal discrepancies between the vendor's statement and the client's records.

Question 7

To ensure the completeness of purchases made during the year, the auditor should:

Accepted Answer

Selecting a sample of receiving reports before and after the year-end and ensuring they have been appropriately recorded helps verify that all purchases are recorded in the correct period, ensuring completeness.

Question 8

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control procedures over the invoicing function allow goods to be shipped that are not invoiced. The inadequate control procedures could cause an:

Accepted Answer

The inadequate control procedures would result in goods being shipped that are not invoiced. This would lead to an understatement of revenues and receivables because those transactions have not been recorded. At the same time, the inventory records would show an overstatement because the inventory has been reduced but not recorded as sold. Therefore, choice C is the best answer.

Question 9

Which of the following control activities is not usually performed in the vouchers payable department?

Accepted Answer

The mailing of the cheque and remittance advice is typically controlled by the treasury or accounts payable department, not the vouchers payable department.

Question 10

Which is not a key segregation of duties for the revenue process? Different parties should:

Accepted Answer

Segregation of duties is a key internal control that helps prevent fraud and errors. In the revenue process, it is important to separate responsibilities to ensure that no single individual has control over all aspects of a transaction. Preparing shipping orders and bills of lading are both part of the shipping process, and having the same party perform these tasks does not violate the principle of segregation of duties. The other options (B, C, D) describe combinations of duties that should be segregated to prevent conflicts of interest and reduce the risk of errors or fraud.

Question 11

Purchase cut-off procedures should be designed to test whether or not all inventory:

Accepted Answer

Purchase cut-off procedures are used to ensure that all purchases made by the company before year-end have been recorded in the year-end financial statements. Therefore, option B is the best choice as it directly addresses the purpose of purchase cut-off procedures. Option A is not relevant as it pertains to the valuation of inventory, not cut-off procedures. Option C is not directly related to cut-off procedures, as it deals with the physical possession of inventory. Option D is also not directly related to cut-off procedures, as it deals with the payment for inventory and not the recording of purchases.

Question 12

All of the following are important controls over credit memos except:

Accepted Answer

Although proper segregation of duties is always important for internal controls, this particular control does not pertain specifically to credit memos. The other three choices all relate to controls over credit memos specifically.

Question 13

Which of the following is a primary function of the purchasing department?

Accepted Answer

The primary function of the purchasing department is to ensure the acquisition of goods of a specified quality. While reducing expenditures for goods acquired and verifying the propriety of goods acquired may also be important functions, they are not the primary function of the purchasing department. Additionally, authorising the acquisition of goods is typically done by upper management, not just the purchasing department.

Question 14

An auditor selects a sample from the file of shipping documents to determine whether invoices were prepared. This test is performed to assess which assertion for sales?

Accepted Answer

Completeness is the assertion that all transactions that should have been recorded have been recorded. In this case, the auditor is testing whether all invoices have been prepared.

Question 15

When undertaking tests of controls for revenues, auditors are more concerned with controls associated with the occurrence assertion than they are with the completeness assertion because:

Accepted Answer

Clients are more likely to overstate revenues, so auditors are more concerned with controls associated with the occurrence assertion. This assertion ensures that all recorded revenues actually happened and are valid. The completeness assertion ensures that all valid revenues are recorded, but this is less of a concern because understatement of revenues is less common.

Question 16

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:

Accepted Answer

When control risk is assessed as low for the occurrence assertion concerning sales transactions, and evidence supporting cash receipts and accounts receivable has already been gathered, an auditor is more likely to limit substantive audit tests of sales transactions. This is because evidence on cash receipts and accounts receivable directly relates to the sales transactions' completeness and accuracy, providing assurance about the occurrence of recorded sales.

Question 17

In a properly-designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition and receiving report are verified. The next step in the system is:

Accepted Answer

The answer of In a properly-designed accounts payable system, a...

Question 18

Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate control procedures over the invoicing function allow goods to be invoiced that are not shipped. The inadequate control procedures could cause an:

Accepted Answer

If goods are invoiced but not shipped, revenues and receivables will be overstated because they are recorded without an actual sale. Inventory will be understated because the goods are still in stock but are not accounted for properly.

Question 19

Which of the following internal controls would be most likely to deter the lapping of collections from customers?

Accepted Answer

Lapping involves misappropriating cash receipts and covering up the theft by offsetting it against subsequent receipts. Segregation of duties between receiving cash and posting the accounts receivable ledger would make it difficult for an employee to both receive and post cash receipts without being detected. The other options may help detect other types of fraud or errors but would not specifically deter lapping.

Question 20

The cut-off assertion for accounts payable includes:

Accepted Answer

The cut-off assertion for accounts payable involves determining whether all accounts payable are recorded in the proper period. This means that all invoices and expenses related to the current period are included in the accounts payable balance while any expenses related to the subsequent period are not included. Therefore, option C is the most appropriate choice. Options A, B, and D are also important considerations when performing an audit of accounts payable, but they do not fall under the cut-off assertion for accounts payable.

Quiz 9: Tests of Controls