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Auditing and Assurance Services A Systematic Approach 10th Edition Messier Test Bank 1
Auditing and Assurance Services A Systematic Approach 10th Edition Messier Test Bank 1
Chapter 11
1. Product costs should be matched directly with specific transactions and are recognized upon
recognition of revenue.
True False
True False
True False
True False
5. The principal business objectives of the purchasing process are acquiring goods and services
and paying for those goods and services.
True False
11-1
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6. The accounts payable department is responsible for ensuring that all vendor invoices, cash
disbursements, and adjustments are recorded in the accounts payable records.
True False
7. After the controls are tested, the auditor sets the achieved level of control risk.
True False
8. Because of the low volume of purchase return transactions, the auditor normally does not test the
controls associated with these transactions.
True False
9. Analytical procedures can be used to examine the reasonableness of accounts payable and
accrued expenses.
True False
10. Accounts payable confirmations are used less frequently by auditors than accounts receivable
confirmations.
True False
12. Which of the following accounts is not affected by cash disbursement transactions?
A. Cash.
B. Accounts payable.
C. Purchase discounts.
D. Purchase returns.
11-2
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13. A debit memo
14. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher
register to the supporting documents. Which assertion would this test of controls most likely
support?
A. Completeness.
B. Occurrence.
C. Accuracy.
D. Classification.
17. The accounts payable department receives the purchase order form to accomplish all of the
following except to:
11-3
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18. Unrecorded liabilities are most likely to be found during the review of which of the following
documents?
A. Unpaid bills.
B. Shipping records.
C. Bills of lading.
D. Unmatched sales invoices.
19. To determine whether accounts payable are complete, an auditor performs a test to verify that all
merchandise received is recorded. The population of documents for this test consists of all
A. payment vouchers.
B. receiving reports.
C. purchase requisitions.
D. vendors' invoices.
A. voucher register.
B. purchases journal.
C. check register.
D. accounts payable subsidiary ledger.
21. An important primary purpose of the auditor's review of the entity's procurement system should
be to determine the effectiveness of the activities to protect against
22. An entity erroneously recorded a large purchase twice. Which of the following internal controls
would be most likely to detect this error in a timely and efficient manner?
11-4
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23. An auditor performs a test to determine whether all merchandise was received for which the entity
was billed. The population for this test consists of all
A. merchandise received.
B. vendors' invoices.
C. canceled checks.
D. receiving reports.
24. An auditor compares information on canceled checks with information contained in the cash
disbursements journal. The objective of this test is to determine that
25. 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 the prior year's ratio.
C. Vouch a sample of creditor balances to supporting invoices, receiving reports and purchase
orders.
D. Compare cash payments occurring after the balance sheet date with the accounts payable trial
balance.
26. 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. accuracy.
B. occurrence.
C. cutoff.
D. classification.
11-5
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27. The audit procedures used to verify accrued liabilities differ from those employed for the
verification of accounts payable because
A. accrued liabilities usually pertain to services of a continuing nature, while accounts payable are
the result of completed transactions.
B. accrued liability balances are less material than accounts payable balances.
C. evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts
payable is readily available.
D. accrued liabilities at year-end will become accounts payable during the following year.
28. The auditor is most likely to verify accrued commissions payable in conjunction with the
29. Which of the following procedures relating to the examination of accounts payable could the
auditor delegate entirely to the entity's employees?
30. Which of the following audit procedures is least likely to detect an unrecorded liability?
31. An entity's procurement system ends with the assumption of a liability and the eventual payment
of the liability. Which of the following best describes the auditor's primary concern with respect to
liabilities resulting from the procurement system?
11-6
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32. For effective internal control, the accounts payable department should compare the information
on each vendor's invoice with the
33. The authority to accept incoming goods in receiving should be based on a(an)
A. vendor's invoice.
B. materials requisition.
C. bill of lading.
D. approved purchase order.
34. A voucher
35. Operating control over the check signature plate normally should be the responsibility of the
A. Secretary.
B. Chief accountant.
C. Vice President of Finance.
D. Treasurer.
36. In testing controls over cash disbursements, an auditor most likely would determine that the
person who signs the checks also
11-7
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37. 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
38. As an in-charge auditor, you are reviewing a summary of control weaknesses in cash
disbursement procedures. Which one of the following weaknesses, standing alone, should cause
you the least concern?
39. Tests of controls for the occurrence assertion for purchases include all of the following except:
40. An internal control questionnaire indicates that an approved receiving report is required to
accompany every check request for payment of merchandise. Which of the following procedures
provides the greatest assurance that this control is operating effectively?
A. Select and examine receiving reports and ascertain that the related canceled checks are dated
no earlier than the receiving reports.
B. Select and examine receiving reports and ascertain that the related canceled checks are dated
no later than the receiving reports.
C. Select and examine canceled checks and ascertain that the related receiving reports are dated
no earlier than the checks.
D. Select and examine canceled checks and ascertain that the related receiving reports are dated
no later than the checks.
11-8
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41. An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If
the control activities leave no audit trail of documentary evidence, the auditor most likely will test
the procedures by
42. An entity's internal control requires that for every check request 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 expenditures, an auditor most likely would
select items for testing from the population of all
A. purchase orders.
B. canceled checks.
C. receiving reports.
D. approved vouchers.
43. To provide assurance that each voucher is submitted and paid only once, an auditor most likely
would examine a sample of paid vouchers and determine whether each voucher is
44. Which of the following is the most effective control activity to detect vouchers prepared for the
payment of goods that were not received?
11-9
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45. When an auditor selects a sample of items from the vouchers payable register for the last month
of the period under audit and traces these items to underlying documents, the auditor is gathering
evidence primarily in support of the assertion that
46. An auditor traced a sample of purchase orders and the related receiving reports to the purchases
journal and the cash disbursements journal. The purpose of this substantive procedure most
likely was to
47. Substantive procedures to examine the occurrence assertion for accounts payable include
48. Substantive procedures to examine the completeness assertion for accounts payable include
49. Substantive procedures to examine the cutoff assertion for accounts payable include
11-10
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50. Purchase cutoff procedures should be designed to test whether or not all inventory
A. purchased and received before the year-end was recorded before year-end.
B. on the year-end balance sheet was carried at lower of cost or market.
C. on the year-end balance sheet was paid for by the company.
D. owned by the company is in the possession of the company.
51. When searching for unrecorded liabilities at year-end, the population identified for sampling would
be
52. Which of the following is a substantive procedure that an auditor most likely would perform to
verify the existence of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that prenumbered purchase orders are
used and accounted for.
B. Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to
search for unrecorded vendor's invoices.
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and
receiving reports.
D. Confirming accounts payable balances with known suppliers who have zero balances.
53. 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 purchase orders issued just after year-end with the year-end accounts
payable trial balance.
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and
vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of unusual
transactions.
11-11
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54. Which of the following procedures would an auditor least likely perform before the balance sheet
date?
55. An examination of the balance in the accounts payable account is ordinarily not designed to
57. If completeness is a concern for accounts payable, auditors will send accounts payable
confirmations to
58. In auditing accounts payable, an auditor's procedures most likely would focus primarily on
management's assertion of
A. existence.
B. rights and obligations.
C. completeness.
D. valuation and allocation.
11-12
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59. Budd, the purchasing agent for 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 C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was
probably able to accomplish this because of Lake's poor internal control over
A. purchase requisitions.
B. cash receipts.
C. perpetual inventory records.
D. purchase orders.
60. Which of the following control activities is not usually performed in the accounts payable
department?
61. Which of the following is an internal control that would 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. Disbursement vouchers should be approved by at least two responsible management officials.
C. The date on a disbursement voucher should be within a few days of the date the voucher is
presented for payment.
D. The official signing the check should compare the check with the voucher and should "cancel"
the voucher documents by marking them "paid."
62. The mailing of disbursement checks and remittance advices should be controlled by the
employee who
11-13
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63. Assertions about classes of transactions and events for the period under audit include
65. Which of the following test(s) of details of transactions can be used as a dual-purpose test in
conjunction with tests of controls?
66. Which of the following questions would most likely be included in an internal control questionnaire
concerning the completeness assertion for purchases?
A. Is an authorized purchase order required before the receiving department can accept a
shipment or the vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee who
does not have access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted
for?
67. If payables turnover has increased significantly since the prior year, this is an indication that
which of the following assertions for accounts payable might be violated?
A. Existence or occurrence.
B. Completeness.
C. Rights and obligations.
D. Valuation and allocation.
11-14
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68. Which of the following describes a temporary difference?
70. Describe three categories of expenses outlined in FASB Concept Statement No. 5.
11-15
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71. Listed below are six assertions regarding the financial presentations made in the purchasing
process. For each, give an example of how an auditor could use one of the typical documents in
the purchasing process to test the assertion.
Occurrence
Completeness
Authorization
Accuracy
Cutoff
Classification
72. Identify the primary functions in the purchases cycle and describe each function.
Functions in the purchasing process include:
11-16
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73. Listed below are the major functions of the purchasing process.
1) Purchasing function.
2) General ledger function.
3) Invoice-processing function.
4) Disbursement function.
5) Accounts payable function.
6) Requisition and receiving function.
Name four pairs of functions that should be segregated from each other and explain why the
segregation is important.
74. The key inherent risk factors an auditor must consider when auditing the purchasing process are
industry factors. Which two are most important and why?
11-17
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75. Identify the types of substantive procedures used by the auditor to test accounts payable and
accrued expenses. Provide an example of how the auditor may use each substantive procedure.
Identify if any of the substantive procedures can be used as a test of controls or a dual-purpose
test.
76. Identify whether the following tests are substantive analytical procedures, tests of details of
transactions, or tests of details of account balances:
11-18
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77. There are several important disclosure items to consider when auditing the purchasing process.
Discuss what they are and why they are important.
79. The auditor can often obtain sufficient appropriate evidence in the audit of a tax provision without
the use of a specialist. However, several situations may indicate a need for the auditor to involve
a tax specialist. Identify three of these situations.
11-19
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Matching Questions
80. Match the test of controls described below to the appropriate assertion it is used to test.
11-20
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Chapter 11 Auditing the Purchasing Process Answer Key
1. Product costs should be matched directly with specific transactions and are recognized upon
recognition of revenue.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Understand why knowledge of an entity's expense and liability recognition policies is important to the
audit.
Topic: Expense and Liability Recognition
FALSE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Types of Documents and Records
FALSE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Types of Documents and Records
11-21
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4. The purchase journal is referred to as a check register.
FALSE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Types of Documents and Records
5. The principal business objectives of the purchasing process are acquiring goods and services
and paying for those goods and services.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-05 Understand the functions in the purchasing process.
Topic: The Major Functions
6. The accounts payable department is responsible for ensuring that all vendor invoices, cash
disbursements, and adjustments are recorded in the accounts payable records.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-05 Understand the functions in the purchasing process.
Topic: The Major Functions
7. After the controls are tested, the auditor sets the achieved level of control risk.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-08 Know how to assess control risk for a purchasing process.
Topic: Control Risk Assessment
11-22
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8. Because of the low volume of purchase return transactions, the auditor normally does not test
the controls associated with these transactions.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
9. Analytical procedures can be used to examine the reasonableness of accounts payable and
accrued expenses.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-11 Know the substantive analytical procedures used to audit accounts payable and accrued expenses.
Topic: Substantive Analytical Procedures
10. Accounts payable confirmations are used less frequently by auditors than accounts receivable
confirmations.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-13 Understand the confirmation process for accounts payable.
Topic: Accounts Payable Confirmations
11-23
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11. A product cost is
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Understand why knowledge of an entity's expense and liability recognition policies is important to the
audit.
Topic: Expense and Liability Recognition
12. Which of the following accounts is not affected by cash disbursement transactions?
A. Cash.
B. Accounts payable.
C. Purchase discounts.
D. Purchase returns.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-03 Know the types of transactions in the purchasing process and the financial statement accounts
affected.
Topic: Overview of the Purchasing Process
Topic: Types of Transactions and Financial Statement Accounts Affected
11-24
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McGraw-Hill Education.
13. A debit memo
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-03 Know the types of transactions in the purchasing process and the financial statement accounts
affected.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
Topic: Types of Transactions and Financial Statement Accounts Affected
14. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher
register to the supporting documents. Which assertion would this test of controls most likely
support?
A. Completeness.
B. Occurrence.
C. Accuracy.
D. Classification.
11-25
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15. The occurrence assertion for accounts payable includes
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
11-26
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17. The accounts payable department receives the purchase order form to accomplish all of the
following except to:
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Learning Objective: 11-05 Understand the functions in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: The Major Functions
Topic: Types of Documents and Records
18. Unrecorded liabilities are most likely to be found during the review of which of the following
documents?
A. Unpaid bills.
B. Shipping records.
C. Bills of lading.
D. Unmatched sales invoices.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
11-27
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McGraw-Hill Education.
19. To determine whether accounts payable are complete, an auditor performs a test to verify that
all merchandise received is recorded. The population of documents for this test consists of all
A. payment vouchers.
B. receiving reports.
C. purchase requisitions.
D. vendors' invoices.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
A. voucher register.
B. purchases journal.
C. check register.
D. accounts payable subsidiary ledger.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
11-28
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21. An important primary purpose of the auditor's review of the entity's procurement system should
be to determine the effectiveness of the activities to protect against
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
22. An entity erroneously recorded a large purchase twice. Which of the following internal controls
would be most likely to detect this error in a timely and efficient manner?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
11-29
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23. An auditor performs a test to determine whether all merchandise was received for which the
entity was billed. The population for this test consists of all
A. merchandise received.
B. vendors' invoices.
C. canceled checks.
D. receiving reports.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
24. An auditor compares information on canceled checks with information contained in the cash
disbursements journal. The objective of this test is to determine that
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Overview of the Purchasing Process
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-30
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25. 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 the prior year's ratio.
C. Vouch a sample of creditor balances to supporting invoices, receiving reports and
purchase orders.
D. Compare cash payments occurring after the balance sheet date with the accounts payable
trial balance.
26. 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. accuracy.
B. occurrence.
C. cutoff.
D. classification.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Learning Objective: 11-14 Understand how to evaluate the audit findings and reach a final conclusion on accounts payable and
accrued expenses.
Topic: Evaluating the Audit Findings
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-31
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27. The audit procedures used to verify accrued liabilities differ from those employed for the
verification of accounts payable because
A. accrued liabilities usually pertain to services of a continuing nature, while accounts payable
are the result of completed transactions.
B. accrued liability balances are less material than accounts payable balances.
C. evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts
payable is readily available.
D. accrued liabilities at year-end will become accounts payable during the following year.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 1 Easy
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
28. The auditor is most likely to verify accrued commissions payable in conjunction with the
11-32
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29. Which of the following procedures relating to the examination of accounts payable could the
auditor delegate entirely to the entity's employees?
AACSB: Communication
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
30. Which of the following audit procedures is least likely to detect an unrecorded liability?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 1 Easy
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-33
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31. An entity's procurement system ends with the assumption of a liability and the eventual
payment of the liability. Which of the following best describes the auditor's primary concern
with respect to liabilities resulting from the procurement system?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 11-01 Understand why knowledge of an entity's expense and liability recognition policies is important to the
audit.
Learning Objective: 11-02 Understand the purchasing process.
Topic: Expense and Liability Recognition
Topic: Overview of the Purchasing Process
32. For effective internal control, the accounts payable department should compare the
information on each vendor's invoice with the
11-34
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McGraw-Hill Education.
33. The authority to accept incoming goods in receiving should be based on a(an)
A. vendor's invoice.
B. materials requisition.
C. bill of lading.
D. approved purchase order.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
34. A voucher
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
11-35
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35. Operating control over the check signature plate normally should be the responsibility of the
A. Secretary.
B. Chief accountant.
C. Vice President of Finance.
D. Treasurer.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-05 Understand the functions in the purchasing process.
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Topic: Overview of the Purchasing Process
Topic: The Key Segregation of Duties
Topic: The Major Functions
36. In testing controls over cash disbursements, an auditor most likely would determine that the
person who signs the checks also
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-05 Understand the functions in the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: The Major Functions
11-36
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37. 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
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: The Key Segregation of Duties
38. As an in-charge auditor, you are reviewing a summary of control weaknesses in cash
disbursement procedures. Which one of the following weaknesses, standing alone, should
cause you the least concern?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: The Key Segregation of Duties
11-37
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39. Tests of controls for the occurrence assertion for purchases include all of the following except:
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: The Key Segregation of Duties
40. An internal control questionnaire indicates that an approved receiving report is required to
accompany every check request for payment of merchandise. Which of the following
procedures provides the greatest assurance that this control is operating effectively?
A. Select and examine receiving reports and ascertain that the related canceled checks are
dated no earlier than the receiving reports.
B. Select and examine receiving reports and ascertain that the related canceled checks are
dated no later than the receiving reports.
C. Select and examine canceled checks and ascertain that the related receiving reports are
dated no earlier than the checks.
D. Select and examine canceled checks and ascertain that the related receiving reports are
dated no later than the checks.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
11-38
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41. An auditor wishes to perform tests of controls on an entity's cash disbursements procedures. If
the control activities leave no audit trail of documentary evidence, the auditor most likely will
test the procedures by
42. An entity's internal control requires that for every check request 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 expenditures, an auditor most
likely would select items for testing from the population of all
A. purchase orders.
B. canceled checks.
C. receiving reports.
D. approved vouchers.
11-39
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43. To provide assurance that each voucher is submitted and paid only once, an auditor most
likely would examine a sample of paid vouchers and determine whether each voucher is
44. Which of the following is the most effective control activity to detect vouchers prepared for the
payment of goods that were not received?
11-40
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45. When an auditor selects a sample of items from the vouchers payable register for the last
month of the period under audit and traces these items to underlying documents, the auditor is
gathering evidence primarily in support of the assertion that
46. An auditor traced a sample of purchase orders and the related receiving reports to the
purchases journal and the cash disbursements journal. The purpose of this substantive
procedure most likely was to
11-41
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McGraw-Hill Education.
47. Substantive procedures to examine the occurrence assertion for accounts payable include
48. Substantive procedures to examine the completeness assertion for accounts payable include
11-42
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49. Substantive procedures to examine the cutoff assertion for accounts payable include
50. Purchase cutoff procedures should be designed to test whether or not all inventory
A. purchased and received before the year-end was recorded before year-end.
B. on the year-end balance sheet was carried at lower of cost or market.
C. on the year-end balance sheet was paid for by the company.
D. owned by the company is in the possession of the company.
11-43
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51. When searching for unrecorded liabilities at year-end, the population identified for sampling
would be
52. Which of the following is a substantive procedure that an auditor most likely would perform to
verify the existence of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that prenumbered purchase orders
are used and accounted for.
B. Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to
search for unrecorded vendor's invoices.
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders
and receiving reports.
D. Confirming accounts payable balances with known suppliers who have zero balances.
11-44
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53. 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 purchase orders issued just after year-end with the year-end
accounts payable trial balance.
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports
and vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions.
54. Which of the following procedures would an auditor least likely perform before the balance
sheet date?
11-45
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55. An examination of the balance in the accounts payable account is ordinarily not designed to
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Learning Objective: 11-13 Understand the confirmation process for accounts payable.
Topic: Accounts Payable Confirmations
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-46
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McGraw-Hill Education.
57. If completeness is a concern for accounts payable, auditors will send accounts payable
confirmations to
AACSB: Communication
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Learning Objective: 11-13 Understand the confirmation process for accounts payable.
Topic: Accounts Payable Confirmations
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
58. In auditing accounts payable, an auditor's procedures most likely would focus primarily on
management's assertion of
A. existence.
B. rights and obligations.
C. completeness.
D. valuation and allocation.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Learning Objective: 11-14 Understand how to evaluate the audit findings and reach a final conclusion on accounts payable and
accrued expenses.
Topic: Evaluating the Audit Findings
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-47
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59. Budd, the purchasing agent for 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 C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd
was probably able to accomplish this because of Lake's poor internal control over
A. purchase requisitions.
B. cash receipts.
C. perpetual inventory records.
D. purchase orders.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: Types of Documents and Records
60. Which of the following control activities is not usually performed in the accounts payable
department?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-05 Understand the functions in the purchasing process.
Topic: Overview of the Purchasing Process
Topic: The Major Functions
11-48
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61. Which of the following is an internal control that would 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. Disbursement vouchers should be approved by at least two responsible management
officials.
C. The date on a disbursement voucher should be within a few days of the date the voucher is
presented for payment.
D. The official signing the check should compare the check with the voucher and should
"cancel" the voucher documents by marking them "paid."
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
Topic: The Key Segregation of Duties
62. The mailing of disbursement checks and remittance advices should be controlled by the
employee who
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Topic: Overview of the Purchasing Process
Topic: The Key Segregation of Duties
11-49
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McGraw-Hill Education.
63. Assertions about classes of transactions and events for the period under audit include
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-10 Relate the assessment of control risk to substantive testing.
Topic: Relating the Assessed Level of Control Risk to Substantive Procedures
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-10 Relate the assessment of control risk to substantive testing.
Topic: Relating the Assessed Level of Control Risk to Substantive Procedures
65. Which of the following test(s) of details of transactions can be used as a dual-purpose test in
conjunction with tests of controls?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-50
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66. Which of the following questions would most likely be included in an internal control
questionnaire concerning the completeness assertion for purchases?
A. Is an authorized purchase order required before the receiving department can accept a
shipment or the vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee
who does not have access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically
accounted for?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-02 Understand the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Overview of the Purchasing Process
67. If payables turnover has increased significantly since the prior year, this is an indication that
which of the following assertions for accounts payable might be violated?
A. Existence or occurrence.
B. Completeness.
C. Rights and obligations.
D. Valuation and allocation.
11-51
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McGraw-Hill Education.
68. Which of the following describes a temporary difference?
AACSB: Communication
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-15 Understand how to audit the tax provision and related balance sheet accounts.
Topic: Auditing the Tax Provision and Related Balance Sheet Accounts
AACSB: Communication
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-15 Understand how to audit the tax provision and related balance sheet accounts.
Topic: Auditing the Tax Provision and Related Balance Sheet Accounts
11-52
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70. Describe three categories of expenses outlined in FASB Concept Statement No. 5.
1. The first type of expense is a product cost. These costs can be directly matched to specific
transactions or events and are recognized upon recognition of revenue.
2. The second type of expense is a period cost. These are expenses recognized during the
period in which cash is spent or liabilities are incurred for goods and services to be used up
within a short amount of time.
3. The last type of expense includes those that are allocated systematically and rationally to
the period during which the related assets are expected to provide benefits.
AACSB: Communication
AICPA: BB Legal
AICPA: FN Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Understand why knowledge of an entity's expense and liability recognition policies is important to the
audit.
Topic: Expense and Liability Recognition
11-53
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71. Listed below are six assertions regarding the financial presentations made in the purchasing
process. For each, give an example of how an auditor could use one of the typical documents
in the purchasing process to test the assertion.
Occurrence
Completeness
Authorization
Accuracy
Cutoff
Classification
Occurrence - The receiving report provides evidence regarding the occurrence assertion.
This document records the receipt of goods. The auditor can test vouchers for the presence of
an authorized receiving report to ensure that goods were actually received.
Completeness - The auditor can use the entity's vouchers and vendor invoices to test for
completeness. In this case, the auditor will start with these documents and trace them to the
purchases journal. This will provide assurance that all purchased items have been recorded.
Authorization - One example of a document used to test authorization is the purchase
requisition form. This form is used to request goods or services for an authorized individual.
The auditor can check that all purchase requisitions have been properly approved by
reviewing these documents for authorization. This can be an important step in testing controls.
Accuracy - To test accuracy, an auditor can recalculate the amounts listed on the vendor
invoice. This will help ensure that the proper amounts were paid and recorded in the journals.
Cutoff - The dates on the receiving reports and the dates on the vouchers can be compared
with the dates in the purchases journal to test that the purchase transactions were recorded in
the proper period.
Classification - The purchases journal is used to test for proper classification through an
auditor's review of the journal. The journal provides details about each of the transactions
made and to which accounts the transactions were posted.
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-04 Be familiar with the types of documents and records used in the purchasing process.
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
Topic: Types of Documents and Records
11-54
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72. Identify the primary functions in the purchases cycle and describe each function.
Functions in the purchasing process include:
Requisitioning. Initiation and approval of request for goods and services by authorized
individuals consistent with management criteria.
Purchasing. Approval of purchase orders and proper execution as to price, quantity, quality,
and vendor.
Invoice Processing. Processing of vendor invoices for goods and services received; also,
processing of adjustments for allowances, discounts, and returns.
Accounts Payable. Recording of all vendor invoices, cash disbursements, and adjustments in
individual vendor accounts.
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 11-05 Understand the functions in the purchasing process.
Topic: The Major Functions
11-55
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73. Listed below are the major functions of the purchasing process.
1) Purchasing function.
2) General ledger function.
3) Invoice-processing function.
4) Disbursement function.
5) Accounts payable function.
6) Requisition and receiving function.
Name four pairs of functions that should be segregated from each other and explain why the
segregation is important.
1 should be separated from 6 - An individual who performs both of these duties can easily
make fictitious purchases and steal cash.
2 should be separate from 5 - The segregation of these duties makes it difficult to cover up
defalcation of the company's records.
3 should be separated from 5 - This segregation prevents an individual from overpaying for
goods received and stealing cash.
4 should be separated from 5 - Unauthorized transactions can be made by an individual with
control over both of these functions. This can lead to unauthorized checks being written and
the individual stealing cash.
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 11-06 Know the appropriate segregation of duties for the purchasing process.
Topic: The Key Segregation of Duties
11-56
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McGraw-Hill Education.
74. The key inherent risk factors an auditor must consider when auditing the purchasing process
are industry factors. Which two are most important and why?
The adequacy of the supply of raw materials is important to consider. If there is a shortage of
key materials, it could significantly affect the financial performance of the organization.
The stability of the price of raw materials is also important. An increase in the price of
materials increases the cost to make the product. If the company cannot raise its prices to
match the increase, the company's earnings will suffer.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-07 Understand the inherent risks relevant to the purchasing process and related accounts.
Topic: Inherent Risk Assessment
11-57
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McGraw-Hill Education.
75. Identify the types of substantive procedures used by the auditor to test accounts payable and
accrued expenses. Provide an example of how the auditor may use each substantive
procedure. Identify if any of the substantive procedures can be used as a test of controls or a
dual-purpose test.
Example: The auditor might compare payables turnover and days outstanding in accounts
payable to previous years' and industry data or purchase returns or amounts owed to
individual vendors in the current year's accounts payable listing to amounts owed in prior
years.
Examples: To test the occurrence assertion about a purchase, the auditor can test a sample of
vouchers for the presence of an authorized purchase order and receiving report. To test the
completeness assertion, the auditor can trace a sample of vouchers to the purchases journal.
Tests of details of account balances concentrate on the detailed amounts or estimates that
make up the ending balance for accounts payable and accrued expenses.
Example: To test the existence assertion about purchases, the auditor can vouch selected
amounts from the accounts payable listing and schedules for accruals to voucher packets or
other supporting documentation.
Tests of details of disclosures are concerned with the presentation and disclosures related to
accounts payable and accrued expenses.
Example: To test the completeness assertions about accounts payable and accrued
expenses, the auditor can complete a financial reporting checklist to ensure that all financial
statement disclosures related to accounts payable and accrued expenses have been
appropriately disclosed.
11-58
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McGraw-Hill Education.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-10 Relate the assessment of control risk to substantive testing.
Topic: Relating the Assessed Level of Control Risk to Substantive Procedures
76. Identify whether the following tests are substantive analytical procedures, tests of details of
transactions, or tests of details of account balances:
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 11-11 Know the substantive analytical procedures used to audit accounts payable and accrued expenses.
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Substantive Analytical Procedures
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
11-59
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77. There are several important disclosure items to consider when auditing the purchasing
process. Discuss what they are and why they are important.
1. Payables by type. This allows the user to determine how much of the payables relate to the
normal trade or business compared to other payables (i.e. employees).
2. Short and long-term payables. Accounts found in a classified balance sheet.
3. Long-term purchase contracts, including any unusual purchase commitments. This
requirement is to inform the users of what the agreement entails and can help them make
decisions about the company.
4. Related-party transactions. These transactions must be identified separately on the financial
statements, since they are not made at arms-length and are considered differently by potential
users of the financial statements.
5. Dependence on a single vendor or a small number of vendors. This is to inform the users
how much exposure the company would have if a significant vendor were to become
unavailable for some reason.
6. Costs by reportable segment of the business. This would allow the users to evaluate
separate segments of the entity individually.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Reporting
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 11-12 Know the substantive tests of transactions and tests of details of account balances and disclosures
used to audit accounts payable and accrued expenses.
Topic: Tests of Details of Classes of Transactions, Account Balances, and Disclosures
Auditors typically use confirmations for accounts receivable rather than accounts payable
because of the reliability of other evidence. To test accounts payable, the auditor can examine
vendor invoices and vendor statements. These documents originate from sources outside of
the entity being audited and are therefore considered very reliable. Documentation for
accounts receivable is normally generated within the entity, so confirmations provide a more
reliable way of testing these accounts.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Decision Making
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 11-13 Understand the confirmation process for accounts payable.
Topic: Accounts Payable Confirmations
11-60
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McGraw-Hill Education.
79. The auditor can often obtain sufficient appropriate evidence in the audit of a tax provision
without the use of a specialist. However, several situations may indicate a need for the auditor
to involve a tax specialist. Identify three of these situations.
1. Multiple locations with significant foreign operations and related foreign tax
credits/deductions.
2. Business combinations and/or subsidiary dispositions.
3. Material uncertain income tax positions with a governmental authority.
4. Significant changes in ownership, business operations, or tax status.
5. Significant deferred tax assets for which the future realization of the recorded value is in
question.
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 11-15 Understand how to audit the tax provision and related balance sheet accounts.
Topic: Auditing the Tax Provision and Related Balance Sheet Accounts
Matching Questions
11-61
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McGraw-Hill Education.
80. Match the test of controls described below to the appropriate assertion it is used to test.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 11-09 Know the key internal controls and develop relevant tests of controls for purchasing, cash
disbursements, and purchase return transactions.
Topic: Control Activities and Tests of Controls
11-62
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McGraw-Hill Education.