AUD 4.2 - Expense Cycle

Question 1

The following functions should be segregated in a purchase transaction:

Answer 1

Purchase requisition
Purchase orders
Receipt of goods or services

Question 2

This begins the purchase cycle

Answer 2

A purchase requisition

Question 3

Who sends a serially numbered requisition to the purchasing department to place an order?

Answer 3

The department in need of the asset or service

Question 4

Who creates the purchase order which will indicate the description, quantity, and related information for the goods and services that are being requested:

Answer 4

The purchasing department

Question 5

Multiple copies of the purchase order should be sent to:

Answer 5

The requisitioning department
The vendor
The receiving department
The accounting department

Question 6

The purchase order sent to the receiving department serves as what?

Answer 6

Authorization to accept the goods or service when they arrive

Question 7

A blind copy of the purchase order should be sent to the receiving department so that:

Answer 7

The receiving department is forced to count the goods upon arrival

Question 8

Once the receiving department receives the goods, what happens?

Answer 8

A receiving report is forwarded to the accounting department and the goods are forwarded to the requisitioning department

Question 9

When the accounting department receives the receiving report, what happens?

Answer 9

They record the goods as received in inventory and record a payable

Question 10

When an invoice arrives to the accounting department for payment, the accounting department does what?

Answer 10

Compares it to the PO, receiving report, and sometimes the requisition. When payment is made, the accounting department will reverse the payable

Question 11

Who receives the prepared voucher packets (matched invoice, PO, receiving report, and requisition) from accounting and prepares, signs, and mails the checks?

Answer 11

The treasurer

Question 12

Once the treasurer signs and mails the check, what do they do next?

Answer 12

Cancel all supporting documents, returns paid vouchers to accounting for posting of the payment and filing of the documents

Question 13

What assertions are tested when auditing accounts payable?

Answer 13

Completeness
Valuation, allocation, and accuracy
Existence and occurrence
Rights and obligations

Question 14

When auditing completeness for AP, the auditor should:

Answer 14

Agree AP listing to the general ledger
Obtain a sample of vendor statements and agree to vendor accounts
Search for unrecorded liabilities

Question 15

For AP, what assertions are more relevant due to the risk of understatement being greater than the risk of overstatement

Answer 15

Completeness and accuracy are more relevant than existence and rights and obligations

Question 16

When auditing for valuation, allocation, and accuracy for AP, an auditor should:

Answer 16

Agree the AP listing to the general ledger
Sample vendor statements and agree the amounts to the vendor accounts
Send confirms

Question 17

When auditing for existence and occurrence for AP, the auditor should:

Answer 17

Vouch selected amount from the AP listing to the voucher packages. The auditor could also send confirms.

Question 18

When auditing for rights and obligations for AP, the auditor should:

Answer 18

Review a sample of voucher packets for the presence of the purchase requisition, PO, receiving report, and vendor invoice to verify the AP is owed by the entity

Question 19

What assertions are tested when auditing purchase transactions?

Answer 19

Completeness
Cutoff
Valuation, allocation, and accuracy
Existence ad occurrence
Understandability and classification

Question 20

When auditing for completeness for purchase transactions, the auditor should:

Answer 20

Trace a sample of vouchers to the purchase journal

Question 21

When auditing for cutoff for purchase transactions, the auditor should:

Answer 21

Examine purchases before and after year end to determine they were recorded in the proper period

Question 22

When auditing valuation, allocation, and accuracy for purchase transactions, the auditor should:

Answer 22

Recompute the mathematical accuracy of a sample of vendor invoices

Question 23

When auditing the existence and occurrence for purchase transactions, the auditor should:

Answer 23

Test a sample of vouchers to confirm proper authorization and presence of receiving report

Question 24

When auditing for understandability and classification for purchase transactions, the auditor should:

Answer 24

Verify the account classification of a sample of purchases