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Exam 18: Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable

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Question 61

Multiple Choice

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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

A) requested by and approved by the same individual.
B) used in the course of business and solely for business purposes during the year under audit.
C) received, counted, and checked to quantities and amounts on purchase orders and invoices.
D) properly recorded as assets and systematically amortized over the estimated useful life of the supplies.

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Question 62

Multiple Choice

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List the following documents or records in the order they are typically processed with regards to purchase order processing: a. Purchase requisition b. Purchase order c. Receiving Report

A) c, b, a
B) a, b, c
C) b, a, c
D) c, a, b

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Question 63

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Discuss the key internal controls that should be present in the processing purchase orders function in the acquisitions and payment cycle.

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

Examples of a client not using prenumbered receiving reports, a client not recording acquisitions until cash disbursements are actually made, and because of cash shortages paying bills several months after their due date generally force the auditor to perform more extensive substantive testing of the details of accounts payable.

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?

What typically ends the acquisitions and payment cycle?

Purchase returns and allowances and purchase discounts business functions are also part of the acquisition and payment cycle.

When reviewing the controls and procedures in the acquisition and payment cycle,

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.

A document indicating a reduction in the amount owed to a vendor because of returned goods is

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

The accounts payable department usually has responsibility for approving acquisitions for payment by comparing the details on the

Which of the following is a key internal control for the posting and summarization transaction-related audit objective?

Once the auditor concludes that internal controls are operating effectively in the acquisition and the payment cycle, the verification of accounts payable should require little audit effort.

Because of double-entry accounting, misstatement of an expense account usually also results in an equal misstatement of accounts payable.

Which of the following should sign checks under conditions of effective internal control?

A written purchase order is a contractual document that is

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.

How do auditors determine the extent of testing of internal controls in the acquisition and payment cycle?