Expenditures/Disbursements

Question 1

In testing controls over cash disbursements, an auditor would be most likely to determine that the person who signs checks also

Answer 1

Responsible for mailing the check

Question 2

In a well-designed internal control structure, employees in the same department most likely would approve purchase orders, and also

Answer 2

Negotiate terms with vendors

Question 3

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the

Answer 3

DEBIT MEMO

A debit memo advises accounting that the vendor invoice should not be paid in full due to returned goods. When the shipping department returns nonconforming goods to a vendor, purchasing should send accounting a debit memo.

Question 4

Mailing disbursement checks and remittance advices should be controlled by the employee who

Answer 4

Signs the checks last

Question 5

An auditor wishes to perform tests of controls on a client’s cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor will be most likely to test the procedures by

Answer 5

Observation and inquiry

When documentation of a control does not exist, the auditor may use observation and inquiry to test the procedure.