Recorded vouchers (accounts payable entries) in the voucher register (e.g., purchases journal) supported by completed voucher documentation" is a specific example of which management assertion?
A. Classification.
B. Occurrence.
C. Completeness.
D. Cutoff
Occurrence
All purchase orders are supported by requisitions from proper persons" is a specific example of which management assertion?
A. Occurrence.
B. Completeness.
C. Cutoff.
D. Classification.
Occurrence
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal. The purpose of this substantive audit procedure most likely was to
A. Identify usually large purchases that should be investigated further.
B. Verify
Determine that purchases were properly recorded
The usual source for journal entries posted to the general ledger to record the purchase of inventory is
A. Sales invoices updated with cost data from the inventory records department.
B. Purchase invoices updated with cost data from the inventory records
Vouchers payable journal from the accounts payable department
Which of the following would detect the understatement of a purchase discount?
A. Verify the arithmetic accuracy of the purchases journal.
B. Compare purchase disbursement records and checks with invoice terms.
C. Compare approved purchase orders to recei
Compare purchase disbursement records and checks with invoice terms.
Which of the following situations indicates a potential material weakness in internal control over acquisition and expenditure?
A. Purchase orders are not prepared for services acquired directly under authorization of department heads.
B. The same person
The same person authorizes voucher packages and signs checks
When auditing merchandise inventory at year-end, the auditor performs a purchase cutoff test to obtain evidence that
A. All goods purchased before year-end are received before the physical inventory count.
B. No goods held on consignment for customers are
All goods owned at year-end are included in the inventory balance.
The auditor decided to test accounts payable by sending open-ended (blank) confirmations to selected vendors. The auditor's best approach in selecting the vendor accounts to confirm is to
A. Select vendor accounts with large balances.
B. Select vendor acc
Select vendor accounts based on the number of purchases from vendors during the year
What evidence is appropriate to determine whether recorded purchase transactions are valid and the vendors charged the correct prices?
A. Purchase requisitions and accounts payable entries.
B. Receiving reports and purchase orders.
C. Purchase requisition
Receiving reports and purchase orders
Purchase cutoff procedures should be designed to produce evidence of whether merchandise is included in the inventory of the client company if the company
A. Has paid for the merchandise.
B. Has physical possession of the merchandise.
C. Holds legal title
Holds legal title to the merchandise
Which of the following accounts would most likely be reviewed by the auditor to gain reasonable assurance that additions to the equipment account are not understated?
A. Depreciation expense.
B. Gain on disposal of equipment.
C. Accounts payable.
D. Repai
Repairs and maintenance expense
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be
A. Vendors with whom the entity has previously done business.
B. Amounts recorded in the accounts payable s
Vendors with whom the entity has previously done business
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
A. Reconcile receiving reports with related cash payments made just prior to year-end.
B. Contrast the ratio of accounts payable to purchases with
Compare cash payments occurring after the balance sheet date with the accounts payable trial balance
An entity's internal control structure requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expendit
Canceled checks
An auditor wishes to perform tests of controls on a client's purchasing procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
A. Confirmation and observation.
B. Observation
Observation and inquiry
Which of the following audit procedures is best for identifying unrecorded accounts payable?.
A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
B. Investigati
Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period
Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of
A. Valuation or allocation.
B. Existence or occurrence.
C. Complet
Completeness
When auditing PP&E, the auditor's approach is generally to
A. Examine evidence supporting the amounts in the ending balance.
B. Examine evidence supporting additions during the year.
C. Follow a reliance strategy, testing internal controls and analytical
Examine evidence supporting additions during the year
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.
B. Compare a sample of purc
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices
A weakness in internal control over recording retirements of equipment may cause an auditor toA. Inspect certain items of equipment in the plant and trace those items to the accounting records.
B. Review the subsidiary ledger to ascertain whether deprecia
Select certain items of equipment from the accounting records and locate them in the plant
Failure to record a liability generally results in
A. An understatement of profit.
B. An understatement of current ratio.
C. An overstatement of profit.
D. An overstatement of assets.
An overstatement of profit
Improperly capitalizing an expense item results in
A. Understatement of profit in the current year and overstatement in future years.
B. Understatement of profit in the current year and in future years.
C. Overstatement of profit in the current year and u
Overstatement of profit in the current year and understatement in future years
A liability for a long-term purchase contract should generally be recognized when
A. The contract is signed.
B. The goods are shipped.
C. The goods are received.
D. The goods are sold to match the cost.
The goods are received
Which of the following expense accounts would not normally be tested by listing all debits and examining any significant items?
A. Legal expense.
B. Miscellaneous expense.
C. Repairs and Maintenance.
D. Payroll expense.
Payroll expense
Which of the following would be an indicator of potential fraud?
A. Photocopies of invoices in the voucher file.
B. Vendor invoices in numerical order.
C. Vendors with only post office box addresses.
D. All of the above indicate potential fraud.
All of the above indicate potential fraud
Which of the following fraud detection steps could not be performed by CAATs?
A. Look for photocopies in invoice files.
B. Look for vendor invoices in numerical order.
C. Look for vendor invoices slightly below the approval threshold.
D. Look for duplicat
Look for photocopies in invoice files
Tracing a sample of time clock cards to payroll registers (journals) is a procedure designed to obtain evidence about the transaction assertion(s) of
A. Occurrence only.
B. Occurrence and accuracy only.
C. Completeness only.
D. Accuracy only.
Completeness only
The permanent reference files (master files) in a personnel and payroll database ordinarily do not include which of the following?
A. Deduction table.
B. Payroll master.
C. Compensation table.
D. Employee earning record.
Employee earning record
Which of the following situations represents an internal control weakness in the payroll department?
A. Payroll department personnel are rotated in their duties.
B. Paychecks are distributed by the employees' immediate supervisor.
C. Payroll records are r
Paychecks are distributed by the employees' immediate supervisor
Which of the following personnel department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department?
A. Distributing paychecks.
B. Authorizing overtime hours.
C. Authorizing the addition or deletion of
Authorizing the addition or deletion of employees from the payroll.
To test the transaction assertion of occurrence in the area of payroll, the auditor most likely would
A. Select a sample of personnel files and trace the pay rate to union contracts or other rate rights and obligations.
B. Select a sample of personnel fil
Select a sample of payroll register entries and vouch hours worked to clock time cards
Small Corporation uses a Wages Clearing Account for its payroll disbursements. At the end of February, a reasonably large debit balance remained in this account. The most likely reason for this is that
A. More labor cost had been assigned to the expense a
Some labor cost had not been properly classified in the expense accounts
Which of the following is not a major control risk in the payroll cycle?
A. Paying fictitious "employees."
B. Overpaying for time or production.
C. Losing employees to competitors.
D. Incorrect accounting for costs or expenses.
Losing employees to competitors
The sampling unit in a test of controls pertaining to the existence or occurrence of payroll transactions ordinarily is a(an)
A. Clock card or time ticket.
B. Employee Form W-2.
C. Employee personnel record.
D. Payroll register (journal) entry.
Payroll register (journal) entry
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
A. Human resources function from the controllership function.
B. Administrative controls from the internal accounting controls.
C. Authorization o
Authorization of transactions from the custody of related assets
An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for
A. Examining authorization forms for new employees.
B. Comparing payroll registers with original batch transmittal data.
C. Distribute
Distribute payroll checks to all employees
An auditor most likely would extend substantive tests of payroll when
A. Payroll is extensively audited by the state government.
B. Payroll expense is substantially higher than in the prior year.
C. Overpayments are discovered in performing tests of contr
Overpayments are discovered in performing tests of controls
An auditor most likely would perform substantive procedures on payroll transactions and balances when
A. Cutoff tests indicate a substantial amount of accrued payroll expense.
B. The assessed level of control risk relative to payroll transactions is low.
Analytical procedures indicate unusual fluctuations in recurring payroll entries
An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that
A. Payments to employees are computed at authorized rates.
B. Employees work the number of hours for which they are paid.
C. Sepa
Employees work the number of hours for which they are paid
Substantive tests of account balances in the payroll cycle are likely to include the following procedures except
A. Analytical review procedures.
B. Recalculation of accruals.
C. Comparison of accruals to subsequent payments.
D. Detail vouching of payroll
Detail vouching of payroll expense entries
Which of the following accounts does not appear in the acquisition and expenditure cycle?
A. Cash.
B. Purchases Returns.
C. Sales Returns.
D. Prepaid Insurance.
Sales Returns
For which of the following accounts would the matching concept be the most appropriate?
A. Cost of Goods Sold.
B. Research and Development.
C. Depreciation Expense.
D. Sales.
Cost of Goods Sold
Which of the following would not overstate current-period net income?
A. Capitalizing an expenditure that should be expensed.
B. Failing to record a liability for an expenditure.
C. Failing to record a check paying an item in vouchers payable.
D. All of t
Failing to record a check paying an item in vouchers payable
A client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' primary concern with respect to liabilities resulting from the purchasing system?
A. Accounts payable are not mat
Accounts payable are not materially understated
Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?
A. Vouchers should be prepared by individuals who are responsible for signing disbursement checks.
B. Dis
The official who signs the check should compare the check with the voucher and should stamp PAID on the voucher documents
R. Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a cash-on-delivery (COD) basis, thereby enabling his relative t
Purchase orders
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?A. Examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable.
B. Examine a sample of
Examine a sample of cash disbursements in the period subsequent to year-end
Which of the following procedures is LEAST likely to be performed before the balance-sheet date?
A. Observation of inventory.
B. Review of internal control over cash disbursements.
C. Search for unrecorded liabilities.
D. Confirmation of receivables.
Search for unrecorded liabilities
To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all
A. Vendors' invoices.
B. Purchase orders.
C. Receiving reports.
D. Canceled
Receiving reports
When verifying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase
A. Approvals.
B. Requisitions.
C. Invoices.
D. Orders.
Invoices
A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the 84 tables ordered. The fur
Personnel in the furniture company's purchasing department should compare the purchase requisition to the purchase order
L. Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and received the checks at a post office box. This should have been prevented by
A. Comparison of the company name to the approved vendor list by the check sig
Refusal by the purchasing department to approve the vendor
An audit team would MOST likely examine the detail support for which of the following charges?
A. Payroll expense.
B. Cost of goods sold.
C. Supplies expense.
D. Legal expense.
Legal expense
Which of the following accounts would most likely be audited in connection with a related balance sheet account?
A. Property Tax Expense.
B. Payroll Expense.
C. Research and Development.
D. Legal Expense.
Property Tax Expense
When auditing liabilities account balances, auditors are most concerned with management' assertion about
A. Existence.
B. Rights and obligations.
C. Completeness.
D. Valuation and allocation.
Completeness
In a test of controls, auditors may trace receiving reports to vouchers recorded in the voucher register. This is a test for
A. Occurrence.
B. Completeness.
C. Classification.
D. Cutoff.
Completeness
An audit team most likely would assess control risk at the maximum if the payroll department supervisor is responsible for
A. Examining authorization forms for new employees.
B. Comparing payroll registers with original batch transmittal data.
C. Authoriz
Authorizing payroll rate changes for all employees
Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?
A. Personnel.
B. Treasurer.
C. Controller.
D. Payroll.
Personnel
Matthew Corp. has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computerized system automatically updates all payroll records. Because of t
Part of the audit trail is altered
Effective control over the cash payroll function would mandate which of the following?
A. The payroll clerk should fill the envelopes with cash and include a computation of the net wages.
B. The paymaster should be retain unclaimed payroll envelopes.
C. E
Each employee should be asked to sign a receipt for wages received
A large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to.
A. Ensure that emp
Detect any fictitious employee who may have been placed on the payroll
Auditors ordinarily ascertain whether payroll checks are properly endorsed during the audit of
A. Clock cards.
B. The voucher system.
C. Cash in bank.
D. Accrued payroll.
Clock cards
In determining the effectiveness of an entity's policies and procedures relating to the occurrence assertion for payroll transactions, auditors most likely would inquire about and
A. Observe the separation of duties concerning personnel responsibilities a
Observe the separation of duties concerning personnel responsibilities and payroll disbursement
Which of the following activities most likely would be considered a weakness in an entity's internal control over payroll?
A. A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department's payrol
The employee who distributes payroll checks returns unclaimed payroll checks to the payroll department
The transactions typically classified in the acquisition and expenditure cycle flow do not include
A. Requesting goods, services, or assets.
B. Placing the sales order.
C. Receiving, inspecting, and accepting the assets.
D. Accounting for accounts payable
Placing the sales order
The review phase of the transaction flow in the acquisition and expenditure cycle does not include
A. Interviews.
B. Observations.
C. Collecting sample documents.
D. Substantive procedures.
Substantive procedures
The internal control questionnaire for receipt of purchases completeness objective would not include which of the following questions?
A. Are the purchase order forms prenumbered and the numerical sequence checked for missing documents?
B. Are receiving r
Are competitive bids received and reviewed for certain items?
A voucher typically does not have attached to it a copy of which of the following documents?
A. Requisition.
B. Purchase order.
C. Vendor's invoice.
D. Check register.
Check register
Computer controls that might be found in an advanced on-line acquisition and expenditure system would not include
A. All vendor invoices are prenumbered and the numbers accounted for.
B. Each terminal performs only designated functions.
C. An identificati
All vendor invoices are prenumbered and the numbers accounted for
Specific balance assertions typical of accounts payable would not include
A. Recorded liabilities are obligations of the entity.
B. Estimated liabilities are properly valued.
C. Accounts payable are not pledged as collateral.
D. Payables are recorded in t
Accounts payable are not pledged as collateral.
The inherent risk that accounts payable may be omitted or otherwise understated typically is
A. Low.
B. High.
C. Moderate.
D. Indeterminate.
High
An audit plan for accounts payable would not include which of the following procedures?
A. Obtaining a trial balance of recorded accounts payable.
B. Sending confirmation to accounts with zero balances.
C. Reviewing cash receipts for the period after year
Reviewing cash receipts for the period after year-end
Which of the following would not typically be a specific relevant assertion about fixed asset accounts?
A. Fixed assets in the accounts exist and are in productive use.
B. Net carrying book values in the accounts are reflected at current market values.
C.
Net carrying book values in the accounts are reflected at current market values
The typical functions of the personnel and payroll cycle would not include
A. Labor relations.
B. Report of attendance and work performed.
C. Allocation to cost of goods sold.
D. Payroll accounting.
Labor relations
An internal control questionnaire for payroll processing occurrence assertion would not include which of the following questions?
A. Are names of terminated employees reported in writing to the payroll department?
B. Is the payroll compared to personnel f
Are all wage rates determined by contract or approved by a personnel officer?
Which of the following functional responsibilities would not typically relate to salaried employees?
A. Collecting timekeeping data.
B. Supervision.
C. Personnel or labor relations.
D. Payroll distribution.
Collecting timekeeping data