The overall objective in the audit of the acquisition and payment cycle is:
to ensure the reliability of the affected accounts.
to ensure the accuracy of the affected accounts.
to evaluate whether the affected accounts are fairly presented in accordance with accounting standards.
to evaluate whether fraudulent payments were made.
Which of the following accounts is not part of the acquisition and payment cycle?
Prepaid expenses
Accounts payable
Sales returns and allowances
Property, plant, and equipment
The acquisition and payment cycle consists of one class of transactions.
The cash account is not part of the acquisitions and payment cycle.
Auditing the acquisition and payment cycle often takes more time than any other cycle.
What typically initiates the acquisitions and payment cycle?
Issuance of a purchase requisition or request for purchase of goods/services
Issuance of payment to vendor
Approval of a new vendor
Purchase requisition
What typically ends the acquisitions and payment cycle?
Issuance of a payment on accounts payable
Which of the following accounts is not included in the acquisitions class of transactions?
Inventory
Purchase discounts
A document indicating a reduction in the amount owed to a vendor because of returned goods is:
a debit memo.
a credit memo.
a receiving report.
a contractual adjustment form.
A document used by organizations to establish a formal means of recording and controlling acquisitions which usually contains a package of documents about the acquisition is the:
voucher.
purchase order.
receiving report.
purchase requisition.
The computer-generated file which records acquisitions, disbursements and allowances for each vendor is the:
Accounts payable master file.
Cash disbursements file.
Acquisitions transaction file.
Purchase approval file.
Which of the following business functions is not considered to be part of the acquisitions class of transactions?
Processing purchase orders
Recognizing liabilities
Receiving goods and services
Processing cash disbursements
Smaller privately held companies may not maintain an accounts payable master file by vendor. These companies pay on the basis of:
vendors' monthly statements.
individual vendors' invoices.
the accounts payable account in the general ledger.
dunning letters.
After a purchase requisition is approved, a ________ must be initiated to purchase the goods or services.
purchase order
vendor order
call order
vendor invoice
A document generally received from the vendor which indicates a reduction in the amount owed due to the company granting an allowance is a:
vendor invoice.
debit memo.
credit adjustment form.
credit memo.
Absent disputed amounts and minor timing differences, the vendor's statements should reconcile to the:
acquisition journal.
accounts payable master file.
cash disbursements amount for purchases.
vouchers payable amount for vendors.
The acquisition and payment cycle typically begins with the initiation of purchase requisition for goods and services from an authorized individual.
A vendor invoice is normally prepared at the time tangible goods are received and indicates the description of goods, the quantity received, the date received, and other relevant data.
A document received from the vendor indicating such things as the description and quantity of goods and services received, price including freight, cash discount terms, and date of billing is called the voucher.
An acquisitions transaction file is a computer generated file that includes all information entered into the system regarding acquisition transactions.
Receiving reports are normally only used to document the receipt of goods and are not used to document the receipt of services.
You have been assigned to the accounts payable transaction cycle as part of your auditing responsibilities. You have decided to vouch a sample of entries in the accounts payable master file to supporting documents. Which assertion is this test of controls most likely to support?
Accuracy
Classification
Completeness
Occurrence
An auditor is gathering evidence on the completeness assertion. To do so she performs a test to verify that all goods received by the company have been recorded properly. The document population for this test would consist of all:
vendor invoices.
purchase orders.
receiving reports.
cash disbursements for accounts payables.
Which of the following is not an accurate statement regarding the acquisition and payment cycle?
The personnel in the receiving department should be independent of the storeroom personnel.
Goods received should be physically controlled from the time of their receipt until their use or disposal.
Accounting records should transfer responsibility for the goods each time they are moved.
The accounting department should be responsible for receiving goods and preparing the receiving report
When reviewing the controls and procedures in the acquisition and payment cycle:
companies cannot record the liability for the acquisition until the invoice is received from the vendor.
the purchasing department has the responsibility for verifying for appropriateness of the acquisition.
personnel who record the acquisitions should not have access to cash or other assets.
the accounts payable department should account for all receiving reports to assure that the occurrence objective is satisfied.
A written purchase order is a contractual document that is:
an offer to buy goods or services.
not enforceable if it is not in writing.
a binding agreement between purchaser and vendor.
an acceptance of a vendor's catalog offer to sell.
Which one of the following duties should not be assigned the purchases department?
Finding the lowest cost vendor
Reviewing vendors' catalog descriptions and prices for standardized items
Designing the purchase order form
Authorizing the acquisition of goods
The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the:
vendor's invoice and the receiving report.
vendor's invoice and the purchase requisition.
purchase order, receiving report, and vendor's invoice.
purchase requisition, purchase order, and receiving report.
A substantive tests of transactions for acquisitions that would be used to provide evidence regarding the occurrence assertion would be to:
compare the classification with the chart of accounts by referring to vendors' invoices.
recompute the clerical accuracy on the vendors' invoice.
review the acquisitions journal for large or unusual amounts.
trace from a file of receiving reports to the acquisition journal.
When testing the controls for the completeness transaction-related audit objectives:
failure to record the acquisition of goods or services will generally understate net income.
failure to record the acquisition of goods or services has no impact on the balance sheet.
it is generally easy for the auditor to determine whether unrecorded transactions exist.
the audit time for accounts payable can be reduced if the client has effective internal controls and the auditor properly tests those controls.
Which of the following is not a key control in the acquisition and payment cycle?
Authorization of purchases
Authorization of credit
Timely recording and independent review of transactions
Authorization of payments
A key internal control over the acquisition cycle is to ensure that the company requires recording transactions as soon as possible after the goods and services have been received. This satisfies the transaction-related audit objective of:
accuracy
completeness.
timing.
occurrence.
When a client uses perpetual inventory records, the tests of details of balances for inventory can be significantly reduced if the auditor believes the records are accurate. The controls over the acquisitions included in the records are normally tested as a part of the:
tests of controls for acquisitions.
tests of controls and substantive tests of transactions for acquisitions.
tests of details of balances for acquisitions.
analytical procedures and tests of controls for acquisitions.
The auditor's internal control objective to determine that "recorded acquisitions are for goods and services received" satisfies the audit objective of:
accuracy.
occurrence
authorization.
Failure to record the acquisition of goods is a violation of which audit objective?
Authorization
The internal control that requires that "checks are prenumbered and accounted for" satisfies the objective of:
existence.
posting and summarization.
Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, it is common in this audit area to use:
block sampling.
variables sampling.
attributes sampling.
probability proportional to size sampling.
Which of the following tests of controls is least useful in assessing the transaction-related audit objective related to occurrence?
Examine documents in voucher package for occurrence.
Examine supporting documents for indication of approval.
Account for sequence of vouchers.
Attempt to input transactions with valid and invalid vendors.
You are performing the audit of Jenkins and Company. Your tests of controls and tests of transactions for accounts payable demonstrate that the controls are operating effectively. This would normally allow you to:
eliminate the need for substantive testing of balances for accounts payable.
reduce the need for substantive testing of balances for accounts payable.
reduce control tests in other transactions cycles.
increase the need for substantive testing of balances for accounts payable.
An auditor is using audit sampling to test transactions in the acquisition and payment cycle. She would normally set the tolerable exception rate at what level?
Low
Medium
High
Indeterminate
Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received?
Count goods upon receipt in storeroom.
Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department.
Compare goods received with goods requisitioned in receiving department.
Verify vouchers for accuracy and approval in internal audit department.
Which of the following should sign checks under conditions of effective internal control?
Treasurer
Purchasing agent
Accounts payable clerk
Person preparing the checks
Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that:
acquisitions are correctly valued.
existing acquisitions are recorded.
acquisitions are correctly classified.
recorded acquisitions are for goods and services received.
The test of transactions which requires one to "reconcile recorded cash disbursements with the cash disbursements on the bank statement" satisfies the objective of:
For effective internal control purposes, the vouchers payable department generally should:
approve the purchase order.
have the authority to sign the checks.
establish the agreement of the vendor's invoice with the receiving report and purchase order.
supervise the preparation of the receiving report.
An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:
merchandise received.
vendors' invoices.
canceled checks.
Matching the supplier's invoice, the purchase order, and the receiving report prior to preparing the voucher would normally be the responsibility of the:
warehouse receiving function.
purchasing function.
general accounting function.
treasury function.
A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original invoice and once based upon the monthly statement. A control procedure that should have prevented this duplicate payment is:
attachment of the receiving report to the disbursement report.
prenumbering of disbursement vouchers.
use of a limit or reasonableness test.
prenumbering of receiving reports.
With respect to a small company's system of purchasing supplies, an auditor's primary concern should be to obtain satisfaction that supplies ordered and paid for have been:
requested by and approved by the same individual.
used in the course of business and solely for business purposes during the year under audit.
received, counted, and checked to quantities and amounts on purchase orders and invoices.
properly recorded as assets and systematically amortized over the estimated useful life of the supplies.
Authorization for accepting goods in the receiving department should be based on the:
requisition request.
purchase order from the purchasing department.
vendor statement.
Significant audit efficiencies can be achieved on many audits when controls are operating effectively
Failure to record the acquisition of goods and services received overstates both accounts payable and net income.
The controls over acquisitions included in the perpetual inventory records are normally tested as a part of the test of controls and substantive tests of transactions for the sales and collection cycle.
Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, attributes sampling is commonly used when testing the acquisitions and cash disbursements cycle.
A substantive test of transactions commonly used to test the completeness objective for acquisitions is "Trace from a file of receiving reports to the acquisitions journal."
The audit procedure "Test clerical accuracy by footing the journals and tracing postings to general ledger and to accounts payable and inventory master files" is used to test the posting and summarization objective for acquisitions.
Auditors are normally more concerned about violations of the completeness objective for acquisitions than about violations of the occurrence objective for acquisitions.
It is common in the acquisition and payment cycle for transactions to require significant judgment.
Since there are a large number of accounts involved in the acquisition and payment cycle, there is the potential for classification misstatements, some of which are likely to affect income.
The audit procedure "Examine canceled check for authorized signature, proper endorsement, and cancellation by the bank" is used to test the occurrence objective for cash disbursements.
Auditors need to distinguish between accounts payable and accrued liabilities in designing the appropriate control and substantive tests. A liability is properly accounted for as an account payable if:
the amount is known and owed as of the balance sheet date.
the amount can be estimated and is owed at the balance sheet date.
the amount is known at the balance sheet date and owed by the end of the next fiscal year.
the amount is estimated and owed within 90 days of the balance sheet date.
When determining the methodology for designing tests of details of balances for accounts payable:
supply-chain management activities has led to numerous changes in the design of systems used to initiate and record acquisition and payment activities.
it is relatively inexpensive to audit accounts payable.
performance materiality for accounts payable is set relatively low.
inherent risk is often set at low.
Auditors are especially concerned about the ________ and ________ balance-related audit objectives because of the potential for understatements in the account balance.
completeness, cutoff
completeness, accuracy
classification, realizable value
classification, cutoff
The auditor's ultimate substantive tests depend on the relative effectiveness of internal controls related to accounts payable.
The overall objective in the audit of accounts payable is to determine whether accounts payable:
is fairly stated and properly disclosed.
is overstated.
is understated.
is accurately stated.
________ is a balance-related audit objective that is not applicable to liabilities.
Existence
Detail tie-in
Realizable value
At what point do most companies recognize liabilities in the acquisition and payment cycle when the goods are shipped FOB destination?
When the purchase order is issued
When the vendor acknowledges receipt of the order
When the goods or services are received
When the vendor invoice is received
Cutoff procedures for inventory purchased should be designed by companies to assure the company that:
inventory owned by the company has been received
inventory included in the year end inventory count has been paid.
inventory received before year end was recorded before year end.
inventory was correctly valued at year end.
You are the in-charge auditor and are designing audit procedures for accounts payable. Which of the following management assertions would you normally be most concerned about?
The main focus taken by the auditor in verifying liability balances is on the discovery of: I. understated liabilities. II. omitted liabilities.
I only
II only
both I and II
neither I nor II
By tracing receiving reports issued at and before year-end to vendors' invoices and making sure they are included in accounts payable, the auditor is testing for:
theft of merchandise by employees.
unrecorded obligations.
lapping.
kiting.
The extent of a search for unrecorded liabilities largely depends on:
materiality and inherent risk.
materiality and control risk
materiality only.
inherent risk only.
A document review of which of the following is most likely to yield evidence of any unrecorded liabilities?
Debit memos
Vendor memos
Unpaid accounts payable
Sales invoices out of sequence
When the client's physical inventory occurs before the last day of the year, it is still necessary to perform an accounts payable cutoff at the time of the count. In addition, the auditor must verify whether all acquisitions taking place between the count and the end of the year were added to:
the physical inventory.
accounts payable.
accounts payable and cost of goods sold.
the physical inventory and accounts payable.
Peprah Company pays its accounts payable 45 days after receipt of the goods or services. In this case which audit procedure should be used to detect any unrecorded liabilities?
Examine cash disbursements for several weeks after the balance sheet date.
Reconcile purchase orders to requisition orders.
Reconcile purchase orders to receiving reports.
Reconcile purchase orders to vendor invoices.
Cutoff information for inventory acquisitions should be obtained during:
the interim period prior to year-end.
the interim period immediately following year-end.
the physical observation of inventory.
either the interim period prior to or immediately following year-end.
The auditor has decided to use accounts payables confirmations when testing substantive testing for balances. Which two management assertions is she testing?
Existence and completeness
Existence and occurrence
Existence only
Completeness only
In searching for unrecorded liabilities the purpose of the audit procedure to "examine underlying documentation for subsequent cash disbursements" is to:
uncover liabilities on the balance sheet which should not have been recorded until a subsequent period.
find the documentation relating to a cash disbursement.
uncover payments made in a subsequent accounting period for liabilities that existed at the balance sheet date.
uncover cash disbursements recorded in a subsequent accounting period which should be recorded in this period.
To test for cutoff errors which overstate liabilities, the auditor should trace, to vendors' invoices, the receiving reports issued:
after year-end.
before year-end.
the last day of the fiscal year.
both before and after year-end.
In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests be coordinated with the:
confirmation of payables.
tests of long-term liabilities.
observation of inventory.
cash count.
An inventory acquisition is received late in the afternoon of December 31 after the physical inventory is completed. If the acquisition is included in accounts payable and purchases, but excluded from inventory, the result:
is an understatement of net earnings.
is an overstatement of net earnings.
is an overstatement of working capital.
is an overstatement of owner's equity.
When an acquisition is on an FOB origin basis, the inventory and related accounts payable must be recorded in the current period if the goods were:
received prior to the balance sheet date.
shipped on or before the balance sheet date.
both shipped and received prior to the balance sheet date.
paid for in advance.
When assets are being verified, auditors focus much of their attention on making sure that the accounts are not overstated. Alternatively, auditors focus their efforts on understatement when auditing liabilities. What is the primary reason for this difference in focus?
Auditors' legal liability
GAAP
GAAS requirements
All of the above
A company recorded an acquisition of merchandise and its related liability, but failed to include the merchandise in ending inventory. The effect on the financial statements was to:
understate liabilities.
understate net income.
overstate net income.
have no impact on the financial statements since the errors cancel each other out.
The balance-related audit objective realizable value is not applicable when auditing accounts payable.
When auditing accounts payable, the auditor is more concerned about the possibility of understatements than overstatements
To test for overstatement cutoff amounts when auditing accounts payable, the auditor should trace receiving reports issued before year-end to related vendors' invoices to make sure they are not recorded as accounts payable
The "rights "aspect of the "rights and obligations" objective is not applicable to liabilities.
Auditors primarily emphasize the understatement of liabilities in the audit of accounts payable because they are concerned about potential legal liability.
The documents typically used to reconcile the balance on the accounts payable list with the confirmation or vendor's statements include all of the following except for:
vendor's invoices.
sales invoices.
cancelled checks.
Which of the following is most reliable for verifying the correct balance of accounts payable?
Vendors' invoices
Vendors' statements
Confirmations
Bills of lading
Vendors' statements and vendors' invoices are both relatively reliable evidence because they:
come directly to the auditor without being in client's possession.
originate from a third party.
validate the effectiveness of the control system.
are compared to and reconciled with sales invoices.
The auditor is performing tests of transactions for individual accounts payable transactions with vendors. Which document provides more reliable information about individual transactions with vendors?
Receiving report
Purchase orders
Auditor confirmation of accounts payable balances at the balance sheet date may not need to be performed by the auditor because:
this is a duplication of cutoff tests.
there is likely to be other reliable external evidence available to support the balances.
accounts payable balances at the balance sheet date may not be paid before the audit is completed.
correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment.
Under which of the following circumstances would it be advisable for the auditor to confirm accounts payable with creditors?
Internal accounting control over accounts payable is adequate, and there is sufficient evidence on hand to minimize the risk of a material misstatement.
Confirmation response is expected to be favorable, and accounts payable balances are of immaterial amounts.
Creditor statements are not available and internal control over payables is unsatisfactory.
The majority of accounts payable balances are with associated companies.
The auditor is performing substantive tests of balances for accounts payable. What documentation would provide the best evidence for the ending balance?
Receiving reports
The auditor gets highly reliable evidence about individual transactions by examining:
vendors' invoices
vendors' statements.
confirmations of accounts payable balances.
detailed inventory counting instructions.
Which of the following documents is best for verifying the correct balance in accounts payable?
When auditors examine vendors' statements or receive confirmations, there must be a reconciliation of the statement or confirmation with the:
accounts payable list.
You are performing an audit of Hawk Company. In evaluating the accounts payable balance you are concerned with the completeness assertion. Which of the following audit procedures best satisfy your concern?
Send confirmations to only vendors with large balances.
Send confirmations to vendors with large, active, zero balance accounts and a representative sample of all others.
Send confirmations to vendors chosen from sample stratified by the dollar balance.
Send confirmations to all vendors.
A vendor's statement is unreliable and auditors rarely use it.
When verifying the correct balance in accounts payable, vendors' invoices are more useful than vendors' statements.
