CHAP 14-TB

Question 1

Overstatement of financial results can involve failure to record a transaction.

Answer 1

T

Question 2

Confirmation of accounts payable is a required auditing procedure.

Answer 2

F

Question 3

The primary objective of the auditors’ examination of accounts payable is to determine
whether payments are made on a timely basis.

Answer 3

F

Question 4

Auditors generally consider the evidence regarding accounts payable in the client’s
possession as less reliable than that for accounts receivable.

Answer 4

F

Question 5

Information regarding the proper cutoff of accounts payable is generally obtained in
conjunction with the audit of inventories.

Answer 5

T

Question 6

Accounts payable from an officer should be classified separately from other accounts
payable.

Answer 6

T

Question 7

Controls over accounts payable are unnecessary since an external vendor is involved.

Answer 7

F

Question 8

For effective internal control over accounts payable, the purchasing department should
approve invoices for payment.

Answer 8

F

Question 9

Accounts payable generally present the auditors with difficult valuation problems.

Answer 9

F

Question 10

The confirmation of existing accounts payable proves the completeness of recorded accounts
payable.

Answer 10

F

Question 11

Assume that the auditors are concerned about disbursement transactions that have been
recorded for improper amounts. Which procedure(s) would possibly identify these
transactions?
Item Trace from source documents to
journals
Vouch from journal to source
documents
A. No No
B. No Yes
C. Yes No
D. Yes Yes

Answer 11

D

Question 12

Which of the following best describes a voucher prepared under good internal control?
A) A document prepared by Stores that indicates amount to be purchased.
B) A document prepared by Receiving that indicates the quantity received and approves
payment.
C) A document prepared by Accounts Payable authorizing a cash disbursement.
D) A document received by Purchasing, from a supplier, indicating quantity of goods
purchased and amount due.

Answer 12

C

Question 13

An auditor wishes to perform tests of controls on a client’s cash disbursements relating to
accounts payable. If the control procedures leave no audit trail of documentary evidence, the
auditor most likely will test the procedures by:
A) Confirmation and observation.
B) Observation and inquiry.
C) Analytical procedures and confirmation.
D) Inquiry and analytical procedures.

Answer 13

B

Question 14

Which of the following tests of controls most likely would help assure an auditor that goods
shipped are properly billed?
A) Scan the sales journal for sequential and unusual entries.
B) Examine shipping documents for matching sales invoices.
C) Compare the accounts receivable ledger to daily sales summaries.
D) Inspect unused sales invoices for consecutive prenumbering.

Answer 14

B

Question 15

Which of the following audit procedures is best for identifying unrecorded trade accounts
payable?
A) Reviewing cash disbursements recorded subsequent to the balance sheet date to
determine whether the related payable applies to the prior period.
B) Investigating payables recorded just prior to and just subsequent to the balance sheet
date to determine whether they are supported by receiving reports.
C) Examining unusual relationships between monthly accounts payable balances and
recorded cash payments.
D) Reconciling vendors’ statements to the file of receiving reports to identify items
received just prior to the balance sheet date.

Answer 15

A

Question 16

An entity’s internal control requires for every check request that 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 for testing from the population of:
A) Purchase orders.
B) Canceled checks.
C) Receiving reports.
D) Approved vouchers.

Answer 16

B

Question 17

A client recorded a payable for a large purchase twice. Which of the following controls
would be most likely to detect this error in a timely and efficient manner?
A) Footing the purchases journal.
B) Reconciling vendors’ monthly statements with subsidiary payable ledger accounts.
C) Tracing totals from the purchases journal to the ledger accounts.
D) Sending written quarterly confirmations to all vendors.

Answer 17

B

Question 18

When an auditor finds a debit to accounts payable, which of the following accounts is most
likely to be credited?
A) Accounts Receivable.
B) Accrued liabilities.
C) Cash.
D) Cost of goods sold.

Answer 18

C

Question 19

Which of the following is an example of an accrued liability?
A) Accounts payable.
B) Notes payable.
C) Prepaid insurance.
D) Interest payable.

Answer 19

D

Question 20

A likely analytical procedure to test the accuracy of purchase discounts would be to compute
the ratio of cash discounts earned to:
A) Accounts payable.
B) Notes payable.
C) Purchases.
D) Sales discounts.

Answer 20

C

Question 21

Auditors may choose not to confirm accounts payable because:
A) Confirmation obtains evidence identical to that obtained by cutoff tests.
B) Other reliable external evidence to support the balances is likely to be available.
C) A reading of the corporate minutes reveals that confirmation is unnecessary.
D) The balances due will have changed between the year-end and the date of
confirmation.

Answer 21

B

Question 22

The assertion most directly addressed when performing the search for unrecorded liabilities
is:
A) Completeness.
B) Existence.
C) Presentation.
D) Rights.

Answer 22

A

Question 23

Which of the following manipulations would understate accounts payable on the financial
statements?
A) Overstatement of purchases.
B) Closing the cash disbursements journal prior to year-end.
C) Leaving the cash receipts journal open after year-end.
D) Omission of expenses.

Answer 23

D

Question 24

) Which statement is correct with respect to accounts payable confirmations?
A) The negative form is used in most circumstances.
B) Accounts with new suppliers are always confirmed.
C) They are a required auditing procedure.
D) They are more frequently used in situations in which some vendors don’t send
monthly statements.

Answer 24

D

Question 25

The confirmation of accounts payable is most closely associated with:
A) Assertion risk.
B) Detection risk.
C) Inherent risk.
D) Relative risk.

Answer 25

B

Question 26

Which of the following audit procedures is aimed most directly at testing the completeness
assertion for accounts payable?
A) Footing the list of accounts payable.
B) Examining underlying documentation for cash disbursements in the period after yearend.
C) Tracing shipping reports issued on or before year-end to related customer purchase
orders and invoices.
D) Tracing shipping reports after year-end to related customer purchase orders and
invoices.

Answer 26

B

Question 27

Which of the following best describes the auditors’ approach to the audit of accrued
liabilities?
A) Test computations.
B) Confirmation.
C) Observation.
D) A low planned assessed level of control risk.

Answer 27

A

Question 28

Which of the following statements is correct regarding accounts payable and the auditor’s
procedures?
A) Because it can be difficult to discover a transaction that has not been recorded, the
audit objective of completeness drives many of the substantive procedures applied to
these balances.
B) A judgment whether an unrecorded payable should be recorded before the financial
statements are prepared depends entirely upon the source of the payable.
C) The confirmation of accounts payable selected from the year-end trial balance of such
accounts is most effective in discovering unrecorded liabilities.
D) Unrecorded payables are often discovered through examining vouchers payable
entered into the voucher register prior to the balance sheet date.

Answer 28

A

Question 29

Which of the following assertions is of principal concern to the auditors in the examination
of accounts payable?
A) Existence.
B) Completeness.
C) Valuation.
D) Authorization.

Answer 29

B

Question 30

Which of the following best describes the specific accounts payable that are selected for
confirmation?
A) Accounts with large balances.
B) Accounts with zero balances.
C) Accounts with a large amount of activity regardless of their balance.
D) Accounts for which vendor statements are available.

Answer 30

C

Question 31

Most of the audit work on accounts payable is typically performed:
A) Before the balance sheet date.
B) At the balance sheet date in conjunction with inventory cutoff tests.
C) After the balance sheet date.
D) Simultaneously with the audit of accrued liabilities.

Answer 31

C

Question 32

When the auditors discover an understatement of liabilities, they would most likely also
expect to find an:
A) Understatement of assets.
B) Understatement of owners’ equity.
C) Overstatement of expenses.
D) Understatement of revenues.

Answer 32

A

Question 33

Which of the following procedures for detecting unrecorded transactions at the client’s
December 31 year-end is least likely to result in discovery of an unrecorded year-end account
payable?
A) Examination of invoices received after year-end.
B) Examination of vouchers payable entered in the January voucher register.
C) Examination of January receiving reports prepared for goods shipped FOB
destination in December to the client.
D) Confirmation of year-end accounts payable.

Answer 33

C

Question 34

For good internal control, a copy of a receiving report should be sent to all of the following
departments except:
A) Accounts payable.
B) Purchasing.
C) Stores.
D) Shipping.

Answer 34

D

Question 35

Auditors should be aware that a voucher system may result in which of the following at yearend:
A) Understatement of liabilities.
B) Overstatement of assets.
C) Understatement of owners’ equity.
D) Overstatement of expenses.

Answer 35

A

Question 36

Accrued liabilities generally differ from accounts payable in that accrued liabilities:
A) Are often based on estimates.
B) Are usually confirmed at year-end.
C) Depend upon the existence of a transaction for original recording of the account.
D) Are never included in cost of goods sold.

Answer 36

A

Question 37

The form typically used to confirm accounts payable:
A) Does not require a response from the vendor.
B) Confirms the balance recorded by the client at year-end.
C) Requires the vendor to indicate the amount of the payable.
D) Is the same as the form used to confirm accounts receivable.

Answer 37

C

Question 38

Which of the following is a control procedure that is usually applied to accounts payable?
A) Periodic confirmation of accounts payable.
B) Mailing statements to vendors detailing their account.
C) Periodic aging of accounts payable.
D) Matching invoices with receiving documents before disbursements are authorized.

Answer 38

D

Question 39

Which of the following is the best control procedure to prevent the payment of an invoice
twice?
A) Review of supporting documentation by the person signing the check.
B) Requiring dual signatures on checks.
C) Use of a check protector.
D) Reconciliation of vendor statements to accounts payable.

Answer 39

A

Question 40

The auditors’ search for unrecorded liabilities is completed:
A) During an interim period.
B) At the balance sheet date.
C) Subsequent to the balance sheet date.
D) At any time during the examination.

Answer 40

C

Question 41

When the auditors select a sample from the vouchers payable register at the end of the period
and trace the items to underlying documents, the auditors are gathering evidence primarily to
support that:
A) Recorded obligations were paid.
B) Incurred obligations were recorded in the correct period.
C) Recorded obligations occurred prior to year-end.
D) Cash disbursements were recorded as incurred obligation

Answer 41

C

Question 42

) Internal control over accounts payable is improved when:
A) Vendor statements are reconciled with the accounts payable ledger.
B) Informal bids are obtained.
C) Annual trial balance of accounts payable subsidiary ledgers is required.
D) Payment is made upon approval of the purchasing agent.

Answer 42

A

Question 43

With properly designed internal control, the same employee should not be permitted to:
A) Sign checks and cancel supporting documents.
B) Receive merchandise and prepare a receiving report.
C) Prepare disbursement vouchers and sign checks.
D) Initiate a request to order merchandise and approve merchandise received.

Answer 43

C

Question 44

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.

Answer 44

A

Question 45

Which of the following procedures is least likely to be completed before the balance sheet
date?
A) Observation of inventory.
B) Review of internal control over cash disbursements.
C) Search for unrecorded liabilities.
D) Confirmation of receivables.

Answer 45

C

Question 46

Which of the following audit procedures is least likely to detect an unrecorded liability?
A) Analysis and recomputation of interest expense.
B) Analysis and recomputation of depreciation expense.
C) Mailing of a cash confirmation form.
D) Reading of the minutes of meetings of the board of directors.

Answer 46

B

Question 47

The auditor will most likely perform extensive tests for possible understatement of:
A) Revenues.
B) Assets.
C) Liabilities.
D) Capital.

Answer 47

C

Question 48

To avoid potential errors and fraud, a well-designed internal control in the accounts payable
area should include a separation of which of the following functions?
A) Cash disbursements and invoice verification.
B) Invoice verification and merchandise ordering.
C) Physical handling of merchandise received and preparation of receiving reports.
D) Check signing and cancellation of payment documentation.

Answer 48

B

Question 49

An internal control narrative indicates that an approved voucher is required to support 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 vouchers and ascertain that the related canceled checks are dated
no later than the vouchers.
B) Select and examine vouchers and ascertain that the related canceled checks are dated
no earlier than the vouchers.
C) Select and examine canceled checks and ascertain that the related vouchers are dated
no earlier than the checks.
D) Select and examine canceled checks and ascertain that the related vouchers are dated
no later than the checks.

Answer 49

D

Question 50

The accounts payable department receives the purchase order form to accomplish all of the
following except:
A) Compare invoice price to purchase order price.
B) Ensure the purchase had been properly authorized.
C) Ensure the goods had been received by the party requesting the goods.
D) Compare quantity ordered to quantity purchased.

Answer 50

C

Question 51

Propex Corporation uses a voucher register and does not record invoices in a subsidiary
ledger. Propex will probably benefit most from the additional cost of maintaining an accounts
payable subsidiary ledger if:
A) There are usually invoices in an unmatched invoice file.
B) Vendors’ requests for confirmation of receivables often go unanswered for several
months until paid invoices can be reviewed.
C) Partial payments to vendors are continuously made in the ordinary course of business.
D) It is difficult to reconcile vendors’ monthly statements.

Answer 51

D

Question 52

Operating control over check signing normally should be the responsibility of the:
A) Secretary.
B) Chief accountant.
C) Vice-president of marketing.
D) Treasurer.

Answer 52

D

Question 53

Which of the following tests of details most likely would help an auditor determine whether
accounts payable have been misstated?
A) Examining reported purchase returns that appear too low.
B) Examining vendor statements for amounts not reported as purchases.
C) Search for customer-returned goods that were not reported as returns.
D) Reviewing bank transfers recorded as cash received from customers.

Answer 53

B

Question 54

Which of the following could most likely be performed efficiently with data analytics?
A) Confirmation of accounts payable.
B) Identification of payables from purchases of goods that do not have evidence of
receipt of the goods.
C) Identification of unrecorded accounts payable.
D) Review of vendors’ statements.

Answer 54

B

Question 55

Examining which of the following is likely to be most effective in identifying liabilities that
have not been recorded as of year-end?
A) Purchase requisitions dated on the last day of the year for items ultimately received
several weeks later.
B) Shipping reports for items shipped to customers immediately before year-end.
C) Receiving reports for items received before year-end.
D) Accounts receivable confirmation replies.

Answer 55

C

Question 56

Which of the following is most likely to result in an accrued liability?
A) Purchases of plant assets.
B) Pension liability to employees.
C) Goods purchased for resale.
D) Office supply purchases.

Answer 56

B

Question 57

Which of the following are likely to understate profits?
Overstating assets Overstating
liabilities
A. Yes Yes
B. Yes No
C. No Yes
D. No No
A) Option A
B) Option B
C) Option C
D) Option D

Answer 57

C

Question 58

Of the following, which is likely to be the most effective audit procedure to identify
unrecorded accounts payable?
A) Recalculate the total of the list of accounts payable as of year-end.
B) Examine cash disbursements recorded immediately prior to year-end.
C) Examine cash disbursements in the subsequent period following year-end.
D) Examine cash receipts recorded immediately prior to year-end.

Answer 58

C

Question 59

Auditors in many cases do not confirm accounts payable because:
A) this in essence duplicates their accounts receivable work.
B) accounts payable balances at the balance sheet date are often a combination of more
than one purchase from a vendor.
C) this information is ordinarily obtained in the letter of representations from
management.
D) a purchase from a vendor is involved, there is often sufficient appropriate audit
evidence from other reliable sources readily available.

Answer 59

D

Question 60

When auditing accounts payable, which of the following would auditors be most likely to
consider being properly categorized if it is included in accounts payable?
A) Accounting services payable.
B) Bonds payable.
C) Installment contract payable.
D) Notes payable.

Answer 60

A

Question 61

Which of the following is correct relating to accrued liabilities?
Item Generally accrue over time Generally involve an estimate
A. No No
B. No Yes
C. Yes No
D. Yes Yes
A) Option A
B) Option B
C) Option C
D) Option D

Answer 61

D

Question 62

While auditing a client you find the following entry:
Property, Plant and Equipment $ 150,000
Accounts Payable $ 150,000
That payable was not paid as of year-end and is for repairs that should not be capitalized.
What is the net effect on the following?
Assets Liabilities Owners’ Equity
A. Overstated Overstated Understated
B. Understated Properly Stated Overstated
C. Overstated Properly Stated Overstated
D. Overstated Overstated Properly Stated
A) Option A
B) Option B
C) Option C
D) Option D

Answer 62

C

Question 63

Accounts payable has two relevant assertions relating to aspects of its valuation.
Accordingly, accounts payable is considered a significant:
A) Account balance.
B) Control risk.
C) Income statement account.
D) Misstatement.

Answer 63

A

Question 64

A client received a bank loan for $60,000 and recorded a debit to Cash and a credit to Sales.
The effect of this transaction on net income is an:
A) Overstatemen.
B) Understatement.
C) No effect.
D) Indeterminate net effect.

Answer 64

A

Question 65

With good internal control an auditor would expect purchase requisitions to be initiated by
A) The accounts receivable department.
B) The CEO.
C) The department needing the items requisitioned.
D) The purchasing department.

Answer 65

C

Question 66

The auditors may decide to confirm accounts payable on an audit engagement.
a. Describe two reasons why the confirmation of accounts payable is not a presumptively
mandatory auditing procedure.
b. Describe the audit circumstances in which the auditors are likely to decide to confirm
accounts payable.
c. Describe the types of accounts payable the auditors are likely to select for confirmation.

Question 67

A major concern of the auditors is obtaining evidence about the completeness of recorded
accounts payable.
a. Describe the reason that the auditors are concerned with the completeness of accounts
payable.
b. Describe three ways in which the auditors establish the completeness of accounts
payable.