Question 1

Explain what is meant by "purchase cut-off "and how it relates to the year-end inventory count.How does the risk of such cut-off errors impact on the auditor's planned procedures?

Accepted Answer

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Question 2

The requirement that supplier invoices in the accounts payable register be matched with purchase orders and receiving reports is an example that satisfies the completeness internal control objective for purchases.

Accepted Answer

This requirement satisfies the accuracy and validity internal control objectives, ensuring that only authorized and accurate transactions are recorded.

Question 3

If the auditor selects a sample of open accounts payable and vouches the details to supporting purchase documents,the auditor is testing the objective of validity.

Accepted Answer

When the auditor selects a sample of open accounts payable and vouches the details to supporting purchase documents, they are testing the objective of validity, which aims to ensure that the recorded transactions are legitimate and actually occurred. By verifying that the purchase documents match the details in the accounts payable, the auditor can confirm the validity of the recorded transactions.

Question 4

If the auditor traces a sample of receiving reports to the perpetual inventory records,the auditor is testing the control of validity.

Accepted Answer

Tracing a sample of receiving reports to the perpetual inventory records primarily tests for completeness, ensuring that all received items are recorded in the inventory system, rather than testing for validity.

Question 5

Explain why auditors must put greater emphasis on the completeness assertion when auditing accounts payable.Contrast this with the audit of assets.

Accepted Answer

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Question 6

Briefly explain why the auditor's inventory tests counts are conducted in two directions.

Accepted Answer

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Question 7

The requirement that "perpetual inventory records must be updated as of the date goods are received" is an example of a control that satisfies the "proper period" internal control objective.

Accepted Answer

The "proper period" internal control objective refers to ensuring that transactions are recorded in the correct accounting period. Updating perpetual inventory records as of the date goods are received ensures that transactions are recorded in the correct period, thus satisfying this control objective.

Question 8

Comparing the results of a physical inventory count to the perpetual inventory records is considered a part of the recording function.

Accepted Answer

Comparing the results of a physical inventory count to the perpetual inventory records is considered a part of the control function, not the recording function. This process is used to verify the accuracy of the inventory records and ensure that they match the actual inventory on hand.

Question 9

An auditor should not be concerned if a cross-reference of vendor addresses with employee addresses reveals that there are matches.

Accepted Answer

An auditor should be concerned if there are matches between vendor addresses and employee addresses as this could indicate potential conflicts of interest or fraudulent activities, such as fictitious vendors or employees submitting personal expenses as vendor invoices.

Question 10

Auditors can perform tests of control audit procedures to determine whether the client throughout the period of intended reliance is actually performing controls that are said to be in place and operating.What two characteristics must a detail test of controls audit procedure have in order to be successful?

Accepted Answer

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Question 11

Information gathering about the control structure often begins with an internal control questionnaire.

Accepted Answer

An internal control questionnaire is one of the common tools used to gather information about the control structure of an organization. It typically includes a series of questions that focus on various aspects of the control environment, including the control activities, risk assessment processes, and monitoring mechanisms in place within the organization. By completing the questionnaire, management and other stakeholders can gain a better understanding of the organization's current control structure and identify areas where improvements may be necessary.

Question 12

Use of the revaluation model to present PPE at fair value increased the inherent risk of material misstatement.

Accepted Answer

The use of the revaluation model to present PPE at fair value increased the inherent risk of material misstatement as it requires the use of complex valuation techniques and assumptions, and therefore there is a higher likelihood of errors or bias in the fair value measurement.

Question 13

If an auditee never takes a complete inventory count on a single date,auditor observation of the inventory count is not required.

Accepted Answer

Auditor observation of inventory count is required if a complete inventory count on a single date has not been performed by the auditee. This is because inventory is a significant asset and affects the financial statements. The auditor needs to ensure that the inventory amount is accurately recorded and reported.

Question 14

The accounts payable trial balance is a list of payable amounts by vendor.This total should equal the control account total in the general ledger.

Accepted Answer

The purpose of the accounts payable trial balance is to verify that the total of payable amounts by vendor matches the balance of the accounts payable control account in the general ledger.

Question 15

Jack CPA is the auditor of Jill Corporation.Jack followed last year's working papers in selecting accounts payable to confirm.Jack mailed confirmations to 50 of Jill's 200 suppliers.The sample was designed to select accounts with the largest balances.Jack and Jill spent a lot of time reconciling minor differences between the confirmation amounts and the accounts payable trial balance.
Required:
Do you believe that Jack should have used the same sample design for accounts payable confirmations this year? If not,what suggestions can you give to improve the design?

Accepted Answer

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Question 16

When auditors trace the test counts they took at the physical inventory count to the final inventory summary,they are gathering evidence on the completeness assertion.

Accepted Answer

Tracing the test counts to the final inventory summary ensures that all items that were physically counted have been properly recorded in the inventory count, which supports the completeness assertion.

Question 17

Why are payables vouchers marked "paid" after cheques have been issued in payment of vendor invoices?

Accepted Answer

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Question 18

Auditors must place more emphasis on the existence and rights assertions when obtaining evidence about accounts payable.

Accepted Answer

Auditors typically place more emphasis on the completeness assertion for accounts payable to ensure all liabilities are recorded. Existence and rights assertions are more relevant to assets.

Question 19

The accounts payable trial balance should not include vendors with nonzero balances.

Accepted Answer

The accounts payable trial balance should include all vendors with balances, including those with nonzero balances.

Question 20

Risk assessments and the results of any control testing are taken into account in selecting the nature,timing,and extent of further substantive procedures.

Accepted Answer

Risk assessments and control testing results are important factors in determining the appropriate nature, timing, and extent of further substantive procedures during an audit. This helps ensure that the audit is planned and performed effectively, with a focus on areas of greater risk of material misstatement.

Quiz 12: The Purchases, payables, and Payments Process