Question 1

In the audit of payroll, one of the key issuis to ensure that the payroll expense has been properly recorded and the associated deductions for income tax, employee benefits, and related liabilitiare properly recorded as liabilities.

Accepted Answer

This statement is true. The audit of payroll includes verifying that payroll expenses and associated deductions are accurately recorded in the financial statements as expenses and liabilities, respectively. This is essential to ensure the accuracy and completeness of financial reporting.

Question 2

Employeare generally hired by the purchasing department in the company.

Accepted Answer

Employees can be hired by various departments in a company depending on their role and responsibilities. While the purchasing department may hire employees for roles directly related to purchasing and procurement, other departments such as HR, finance, and operations may also hire employees for various roles within their respective departments.

Question 3

The specific audit objective "accounts payable are liabilitiof the entity at the balance date" is derived from the:

Accepted Answer

The audit objective "accounts payable are liabilities of the entity at the balance date" relates to the rights and obligations assertion. This assertion is concerned with whether the amounts included in the financial statements actually represent the rights and obligations of the entity at the balance sheet date. Therefore, the auditor needs to ensure that the accounts payable balance represents the entity's liability to pay its creditors for goods or services received.

Question 4

Purchase requisitions may originate from:

Accepted Answer

The answer of Purchase requisitions may originate from:
...

Question 5

Even though an employee's supervisor may initiate a request for payroll change, such as a change in job classification or wage rate increase, all changshould be authorized in writing by the personnel department before being entered into the personnel data master file.

Accepted Answer

It is important for the personnel department to have written authorization for any payroll changes before they are entered into the personnel data master file. This helps ensure that changes are properly documented and approved, and can prevent errors or inconsistencies in the payroll system.

Question 6

The receiving department should be instructed to accept no goods without having on file a properly authorized:

Accepted Answer

A purchase order is a document that authorizes a supplier to deliver goods or services and outlines the terms of the agreement. Without a purchase order, the receiving department may not have the proper authorization to accept goods, potentially leading to issues with inventory control and accounts payable.

Question 7

A substantive audit procedure for verifying accounts payable should include tracing the opening balance to the previous year's working papers.

Accepted Answer

Tracing the opening balance to the previous year's working papers is a common and important substantive audit procedure for verifying accounts payable. It helps ensure that the ending balance in the current year is correctly carried forward from the previous year, and that any errors or discrepancies can be identified and investigated.

Question 8

The auditor knows that overstatements of payroll may result from unintentional errors or fraud through payments to fictitious employees, payments to actual employefor hours not worked, and payments to actual employeat higher than authorized rates.

Accepted Answer

The statement accurately describes the potential sources of payroll overstatements that an auditor should consider. These could be caused by unintentional errors, such as mistakes in calculating hours worked or pay rates, or by fraudulent activities such as creating fictitious employees or paying actual employees for hours not worked or at rates higher than authorized.

Question 9

The segregation of receiving goods from the requisitioning and purchasing of those goods prevents those making requisitions from ordering goods directly from suppliers and also prevents the purchasing department from gaining access to goods improperly ordered.

Accepted Answer

The segregation of receiving goods from requisitioning and purchasing helps to prevent unauthorized purchasing and ensures proper control and accountability over goods.

Question 10

Accounts payable is usually the smallest current liability on the balance sheet and a insignificant factor in the evaluation of an entity's short-term solvency, especially when the accounts payable is affected by a high volume of transactions and thus is susceptible to misstatements.

Accepted Answer

While accounts payable may be a relatively small current liability, it is still an important factor in evaluating an entity's short-term solvency. Misstatements in accounts payable can lead to inaccurate financial statements and affect an entity's ability to pay its debts, making it a significant factor in short-term solvency analysis.

Question 11

A copy of the receiving report should be sent directly by the receiving department to the:

Accepted Answer

The receiving report is a document that serves as proof of delivery of goods or services to the recipient. It is typically sent to the accounts payable department, which is responsible for processing invoices and issuing payments for goods or services that have been received. Therefore, choice D, accounts (payable) department, is the correct answer.

Question 12

The occurrence objective for purchases, payabland payroll requirthat accounts payable and payroll liabilitiinclude all amounts owed by the entity to suppliers of goods and servicat the end of the reporting period.

Accepted Answer

The occurrence objective ensures that recorded transactions actually occurred, while completeness ensures all liabilities are recorded. The statement confuses these objectives.

Question 13

Purchase and payroll transactions account for the major expensincurred by a business, and so are a major component in the determination of profit, and also relate to the acquisition of major classof asset including inventoriand capital assets.

Accepted Answer

Purchase and payroll transactions are indeed major expenses incurred by a business and have a significant impact on the determination of profit. These transactions also relate to the acquisition of major classes of assets such as inventory and capital assets. Therefore, the statement is true.

Question 14

A purchase order is a form issued by the supplier detailing the goods or servicsupplied and the amount owing.

Accepted Answer

A purchase order is issued by the buyer to the supplier, detailing the goods or services requested and the agreed-upon price.

Question 15

A check by the auditor on the numeric sequence of prenumbered receiving reports to determine that a supplier's invoice was recorded for each relatto the:

Accepted Answer

The auditor is checking to ensure that all receiving reports were included in the records and that a supplier's invoice was recorded for each one. This is consistent with the completeness assertion, which aims to ensure that all transactions have been recorded.

Question 16

The quantity ordered may not be displayed on the copy of the purchase order sent directly to the:

Accepted Answer

The receiving department is responsible for verifying the quantity of goods received against the purchase order. Thus, the quantity ordered may not be displayed on the copy of the purchase order sent to the receiving department to prevent them from being biased while receiving the goods. The requesting department needs to know the quantity ordered to ensure that they receive the correct amount of goods. The vouchers payable department needs the quantity ordered to match the invoice with the purchase order, and the accounts receivable department does not need the quantity ordered information as it is responsible for managing customer payments.

Question 17

Which of these is not directly affected by purchasand payments transactions?

Accepted Answer

The answer of Which of these is not directly affected...

Question 18

Accounts payable is affected by purchase transactions that increase the account balance and payment transactions that decrease the balance, and thus, detection risk for payablassertions is affected by the inherent and control risk factors related to both these transaction classes.

Accepted Answer

This statement is true. The balance in accounts payable is affected by both purchase transactions that increase the balance and payment transactions that decrease the balance. The risk of misstatement (detection risk) in accounts payable assertions is impacted by the inherent and control risk factors associated with both of these transaction classes.

Question 19

Purchase orders become part of the transaction trail of documentary evidence that directly supports which assertion for purchase transactions?

Accepted Answer

The answer of Purchase orders become part of the transaction...

Question 20

A proper cut-off of payment transactions at the year end, such as verifying and examining the date of chequoutstanding as at the end of the reporting period, is essential to the correct presentation of cash and accounts payable at the end of the reporting period.

Accepted Answer

A proper cut-off of payment transactions at the year-end helps in accurately presenting the cash and accounts payable balance as at the end of the reporting period. This ensures that all payments made and received during the reporting period are recorded in the correct accounting period. Failure to cut off payment transactions will result in errors in the financial statements, and may also lead to misstated cash and accounts payable balances.

Quiz 10: Auditing Purchases, Payabland Payroll