A3 Final review Flashcards
MCQ-08114
Which best describes an appropriate division of responsibilities in the expenditure cycle?
A. The purchasing department compares what was ordered to what was received while the accounts payable department compares what was received to what was billed.
B. The purchasing department creates a purchase order based on an approved requisition, while the accounts payable department approves the corresponding invoice for payment.
C. The purchasing department matches the purchase order, receiving report, and vendor invoice, while the treasurer reviews the matched documents and makes the payments.
D. The receiving department compares the amount of goods received with the amount of goods ordered, while the accounts payable department compares the amount of goods ordered and received with the amount of goods billed.
Choice “B” is correct.
The purchasing department creates a purchase order based on an approved requisition, while the accounts payable department approves the corresponding invoice
for payment after matching the purchase order, receiving report, and vendor invoice.
Choice “A” is incorrect. The accounts payable department compares what was ordered, what was received, and what was billed, by comparing the purchase order,
receiving report, and vendor invoice. The purchasing department does not receive a copy of the receiving report and therefore would have no means of comparing what
was received to what was ordered.
Choice “C” is incorrect. The accounts payable department (not the purchasing department) matches the purchase order, receiving report, and vendor invoice. The
treasurer then reviews the matched documents and makes the payment.
Choice “C” is correct.
Confirmation of accounts receivable is a substantive test, not a test of controls.
Choice “A” is incorrect. Records documenting the usage of computer programs may indicate whether access is appropriately controlled.
Choice “B” is incorrect. Examination of canceled supporting documents helps the auditor determine whether this control is being appropriately applied.
Choice “D” is incorrect. Signatures on authorization forms help the auditor determine whether or not required authorizations are received.
Which audit procedure would most likely provide evidence of completeness?
A. Tracing forward from source documents to journal entries or financial statements.
B. Vouching backward from the financial statements or journal entries to source documents.
C. Obtaining direct written verification from independent third parties about account balances.
D. Reviewing the financial statement.
Choice “A” is correct. Tracing forward from source documents to journal entries or financial statements provides assurance that the transaction is complete and being given proper recognition in the books and records.
Choice “B” is incorrect. Vouching backward from the financial statements or from
journal entries to source documents provides evidence of existence or occurrence.
Choice “C” is incorrect. Obtaining direct written verification from independent third
parties about account balances provides evidence of existence.
Choice “D” is incorrect. Reviewing the financial statement helps with understandability
and classification.
Which of the following is not a substantive procedure used when testing accounts
receivable?
A. Trace sales invoices to customers’ accounts.
B. Recalculate bad debt provisions.
C. Obtain confirmations from customers to ask how much they owe.
D. Inspect the clients’ files related to managements’ reviews of customer credit
records to ensure each customer was investigated.
Choice “D” is correct. Inspecting credit references is a test of control and not a substantive procedure used to test accounts receivable. This procedure tests that certain controls are in place, rather than a test of the accounts receivable balance as a substantive test would do.
Choice “A” is incorrect. Tracing sales invoices to customers’ accounts is used to verify
existence and ownership and is a substantive test when testing accounts receivable.
Choice “B” is incorrect. Recalculating bad debt provisions is a substantive test used to
gain evidence about valuation and is a substantive test when testing accounts
receivable.
Choice “C” is incorrect. Obtaining confirmations from customers to ask how much they
owe is a substantive test used to confirm existence and ownership when testing
accounts receivable.
MCQ-09839
Which of the following is a substantive procedure?
A. Verifying that the vouchers payable package is appropriately approved.
B. Observing the payroll distribution on an unannounced basis.
C. Observing the preparation of the accounts receivable aging schedule.
D. Examining open vouchers as part of the search for unrecorded liabilities.
Choice “D” is correct.
Examining open vouchers as part of the search for unrecorded liabilities is a substantive procedure.
Choice “A” is incorrect. Verifying that the vouchers payable package is properly
approved is a test of controls, not a substantive procedure.
Choice “B” is incorrect. Observation of the payroll distribution on an unannounced
basis is a test of controls, which involves verifying that all personnel being paid are
actually employed by the company.
Choice “C” is incorrect. Observing the preparation of the accounts receivable aging
schedule is a test of controls, not a substantive procedure.
Which financial statement assertion is violated when an expense occurring in one year is not recorded until the following year?
A. Accuracy
B. Classification
C. Completeness
D. Occurrence
Choice “C” is correct.
Expenses for the current year are not complete if an expense occurring in one year is not recorded until the following year.
Choice “A” is incorrect. Accuracy relates to recording at an appropriate amount.
Choice “B” is incorrect. Classification relates to recording in the proper accounts.
Choice “D” is incorrect. Occurrence relates to recording only events that have occurred
during the given year
