AUDITING PROBLEMS – LIABILITIES Liabs – 001

AUDIT PROCEDURES:
1. In using CONFIRMATION PROCEDURE to obtain AUDIT EVIDENCE about COMPLETENESS
ASSERTION for accounts payable, the appropriate population MOST LIKELY is:
A. Invoices filed in the entity/s open invoice file.
B. Payees of checks drawn in the month after the year end.
C. Amounts recorded in the accounts payable subsidiary ledger.
D. Vendors with whom the entity has previously done business

2. To VERIFY the EXISTENCE and VALUATION of recorded ACCOUNTS PAYABE, which of the
following SUBSTANTIVE TESTS is the auditor most likely to perform?
A. Confirming accounts payable balances with known suppliers who have zero balances.
B. Receiving the client’s mail, unopened, for a reasonable period of time after year end to
search for unrecorded vendor’s invoices.
C. Investigating the open purchase order file to ascertain that pre-numbered purchase orders
are used and accounted for.
D. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and
receiving reports.

3. Unrecorded liabilities are most likely to be found during the audit and review of which of the
following documents?
A Unmatched sales invoices C. Shipping records
B. Bills of lading D. Unpaid Bills

4. In identifying UNRECORDED TRADE ACCOUNTS PAYABLE, which of the following AUDIT

PROCEDURES is best to be USED:
A. Recording vendors’ statement to the file of receiving reports to identify items received just prior
to the balance sheet date
B. Examining unusual relationships between monthly accounts payable balances and recorded cash
payments.
C. Investigating payables recorded just prior to and just subsequent to the balance sheet date to
determine whether they are supported by receiving reports.
D. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine
whether the related payables apply to the prior period.

5. Which of the following procedures relating to the examination of accounts payable could the
auditor delegate entirely to the client’s employees?
A. Test footings in the accounts payable ledger.
B. Prepare a schedule of accounts payable.
C. Reconcile unpaid invoices to vendors’ statements.
D. Mail confirmations for selected account balances.
6. In the review and audit of accounts payable, the AUDITOR’S PROCEDURES most likely will be
focused primarily on the MANAGEMENT ASSERTION of:
A. Valuation and allocation C. Presentation and disclosure
B. Completeness D. Existence
7. An auditor performs a test to determine whether all merchandise and items for which the client
was billed was received. The population for this test consists of all
A. Receiving reports C. Canceled checks
B. Vendors’ invoices D. Merchandise received
8. The primary audit test to determine if accounts payable are valued properly is
A. Verification that accounts payable was reported as a current liability in the balance sheet
B. Vouching accounts payable to supporting documentation
C. Conformation of accounts payable
D. An analytical procedure
9. Which of the following procedures is least likely to be performed before the balance sheet
date?
A. Confirmation of receivables C. Testing of internal control over cash
B. Search of unrecorded liabilities D. Observation of inventory count

10. The JUNIOR AUDIT ASSISTANT found a purchase order for a regular supplier in the amount of
P11,000 The PURCHASE ORDER was dated after receipt of goods. The PURCHASING AGENT had
forgotten to issue the purchase order. Likewise, a disbursement of P900 for materials did not
have a receiving report. The audit assistant wanted to select additional purchase orders for
investigation but was unconcerned about lack of receiving report. The Senior Audit Manager
should

A Disagree with the assistant because two problems have an equal risk of loss associated with
them.

B Agree with the assistant because the cash disbursement clerk had been assured by the receiving
clerk that the failure to fill out a report did not happen very often.

C. Agree with the assistant because the amount of the purchase order exception was considerable
larger than the receiving exception.
D. Disagree with the assistant because the lack of a receiving report has a greater risk of loss
associated with it.