M2-Expenditure Cycle

Question 1

Once signed, the check should be mailed to the payee by the check signer or an employee operating under the supervision of the check signer to prevent defalcations of checks. Generally this occurs in the treasurer’s department. (true or false)

Answer 1

true

Question 2

The auditor is able to detect liabilities not recorded at year-end by comparing cash payments made after the balance sheet date to the related receiving reports and vendor invoices; any payments made on transactions dated before year-end reflect a liability that should have been recorded. (true or false)

Answer 2

true

Question 3

In general, an audit procedure can be restated as the question to be answered. In this case, tracing a sample of purchase orders and related receiving reports to the purchases journal and the cash disbursements journal seeks to answer the question, “Were all purchases properly recorded?” (the completeness assertion) (true or false)

Answer 3

true

Question 4

By stamping the voucher “paid,” the check signer cancels the voucher so it cannot be resubmitted for payment. (true or false)

Answer 4

true

Question 5

Matching vendor’s invoices with receiving reports provides authorization for payment and is generally performed in the accounts payable department. Recalculation of vendor invoices is compatible with this authorization function. (true or false)

Answer 5

true

Question 6

Purchase orders should be issued by the purchasing department, not the accounts payable department. (true or false)

Answer 6

true

Question 7

The accounts payable clerk should file invoices and supporting documentation after payment. (true or false)

Answer 7

true

Question 8

The auditor should consider whether the year-end balances of the particular asset or liability accounts that might be selected for interim examination are reasonably predictable with respect to amount, relative significance, and composition. Accounts payable is relatively difficult to predict because it may fluctuate at management’s discretion. (true or false)

Answer 8

true

Question 9

Examining vendor invoices for amounts not reported as purchases is a procedure to determine if accounts payable have been understated (completeness assertion). Accounts payable would be understated for the amounts of purchases that were not reported. (true or false)

Answer 9

true

Question 10

In order to have an appropriate segregation of duties, the purchasing department should prepare the purchase order, the accounts payable department should match the purchase order, receiving report and vendor invoice, and the treasurer should actually make the payment. (true or false)

Answer 10

true

Question 11

When testing the completeness assertion for accounts payable, the appropriate population would be a list of vendors with whom the entity has previously done business. (true or false)

Answer 11

true

Question 12

When testing liabilities, an auditor generally is concerned about understatement (as opposed to overstatement for assets). Therefore, in auditing accounts payable, an auditor’s procedures most likely would focus primarily on management’s assertion of completeness (if accounts payable is not complete it would be understated). (true or false)

Answer 12

true

Question 13

When nonconforming goods are returned to a vendor, the purchasing department should send a debit memo to the accounting department to ensure that the accounts payable balance is reduced appropriately. (true or false)

Answer 13

true