Auditing Accounts Payable Quiz
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Questions and Answers

What is the primary objective of auditors when examining accounts payable?

  • To ensure that payments are made on time.
  • To assess the accuracy of recorded amounts. (correct)
  • To identify potential fraud in payment transactions.
  • To evaluate the internal controls over disbursements.

    • Which statement is true regarding the reliability of evidence for accounts payable?

  • Evidence from accounts payable is considered equally reliable as accounts receivable.
  • Evidence for accounts payable is often not available during the audit.
  • Evidence from accounts payable is less reliable than from accounts receivable.
  • Evidence regarding accounts payable is seen as more reliable than that for accounts receivable. (correct)

    • How is information regarding the proper cutoff of accounts payable generally obtained?

  • During the audit of inventories. (correct)
  • Through discussions with suppliers.
  • From reviewing past financial statements.
  • By analyzing cash flow statements.

    • Which of the following statements about confirmation of accounts payable is correct?

    <p>It does not prove the completeness of recorded accounts payable. (D)</p> Signup and view all the answers

    What is a proper classification for accounts payable owed to an officer?

    <p>It should be classified separately from other accounts payable. (B)</p> Signup and view all the answers

    Which procedure would best help identify improper disbursement transaction amounts?

    <p>Verifying vendor invoices with receiving reports. (D)</p> Signup and view all the answers

    For effective internal control over accounts payable, what should NOT happen?

    <p>The purchasing department should approve invoices for payment. (A)</p> Signup and view all the answers

    The examination of accounts payable mostly presents which kind of challenges to auditors?

    <p>Difficult valuation problems. (B)</p> Signup and view all the answers

    Which account is most likely to be credited when a debit is made to accounts payable?

    <p>Cash (C)</p> Signup and view all the answers

    Which of the following best exemplifies an accrued liability?

    <p>Product warranty liability (D)</p> Signup and view all the answers

    What ratio would be computed to test the accuracy of purchase discounts?

    <p>Cash discounts earned to Purchases (B)</p> Signup and view all the answers

    Why might an auditor decide not to confirm accounts payable?

    <p>Reliable external evidence supports the balances (D)</p> Signup and view all the answers

    Which assertion is primarily tested during a search for unrecorded liabilities?

    <p>Completeness (C)</p> Signup and view all the answers

    Which action would likely result in an understatement of accounts payable in financial statements?

    <p>Closing the cash disbursements journal early (A)</p> Signup and view all the answers

    Which statement regarding accounts payable confirmations is correct?

    <p>More common when some vendors don’t send monthly statements (A)</p> Signup and view all the answers

    The confirmation of accounts payable is most closely linked to which risk?

    <p>Detection risk (D)</p> Signup and view all the answers

    Which audit procedure directly tests the completeness assertion for accounts payable?

    <p>Tracing shipping reports before year-end to customer purchase orders. (B)</p> Signup and view all the answers

    What best describes the auditors' approach to the audit of accrued liabilities?

    <p>A low planned assessed level of control risk. (A)</p> Signup and view all the answers

    What is the main audit objective related to accounts payable?

    <p>Completeness. (A)</p> Signup and view all the answers

    What method should an auditor use to test control procedures if there is no audit trail of documentary evidence for cash disbursements?

    <p>Observation and inquiry (D)</p> Signup and view all the answers

    Which audit procedure is most effective for ensuring goods shipped are correctly billed?

    <p>Examine shipping documents for matching sales invoices (B)</p> Signup and view all the answers

    Which accounts are most appropriate for confirmation in the audit process?

    <p>Accounts with significant activity, regardless of balance. (B)</p> Signup and view all the answers

    When is most of the audit work for accounts payable performed?

    <p>At the balance sheet date alongside inventory tests. (C)</p> Signup and view all the answers

    What is the best audit procedure for identifying unrecorded trade accounts payable?

    <p>Reviewing cash disbursements recorded after the balance sheet date (C)</p> Signup and view all the answers

    What is often the most effective method for discovering unrecorded accounts payable?

    <p>Examining vouchers entered before the balance sheet date. (B)</p> Signup and view all the answers

    To find out if checks are issued for unauthorized expenditures, which documents should an auditor test?

    <p>Approved vouchers (D)</p> Signup and view all the answers

    Which assertion is primarily concerning to auditors when examining accounts payable?

    <p>Completeness. (C)</p> Signup and view all the answers

    Which control is likely to timely detect if a payable was recorded twice for a large purchase?

    <p>Reconciling vendor statements with subsidiary payable accounts (B)</p> Signup and view all the answers

    What principle methodology should auditors apply when assessing accounts payable's recording?

    <p>Consider the timing of liabilities and related documents. (B)</p> Signup and view all the answers

    When assessing the effectiveness of internal control over cash disbursements, what should the auditor check for compliance?

    <p>Approved vouchers and purchase order documentation (D)</p> Signup and view all the answers

    What could represent a key audit step if discrepancies are found in accounts payable?

    <p>Comparing accounts payable to cash disbursements (C)</p> Signup and view all the answers

    In the context of auditor control tests, which method would least likely verify the existence of recorded liabilities?

    <p>Reviewing internal employee emails about payments (D)</p> Signup and view all the answers

    When auditors discover an understatement of liabilities, what is the most likely corresponding finding?

    <p>Understatement of owners' equity (D)</p> Signup and view all the answers

    Which procedure is least likely to uncover an unrecorded year-end account payable?

    <p>Examination of vouchers payable entered in the January voucher register (A)</p> Signup and view all the answers

    For effective internal control, a receiving report should not be sent to which department?

    <p>Shipping (C)</p> Signup and view all the answers

    What effect may a voucher system have at year-end?

    <p>Understatement of liabilities (B)</p> Signup and view all the answers

    Accrued liabilities primarily differ from accounts payable in that they:

    <p>Accumulate over time (D)</p> Signup and view all the answers

    What is the typical form used to confirm accounts payable?

    <p>Requires the vendor to indicate the amount of the payable (A)</p> Signup and view all the answers

    Which of the following is a common control procedure applied to accounts payable?

    <p>Reconciliation of vendor statements with accounts payable (C)</p> Signup and view all the answers

    What is the best control procedure to prevent the payment of an invoice twice?

    <p>Review of supporting documentation by the person signing the check (D)</p> Signup and view all the answers

    When should the auditors complete their search for unrecorded liabilities?

    <p>At the balance sheet date. (A)</p> Signup and view all the answers

    Tracing items from the vouchers payable register to underlying documents primarily supports which assertion?

    <p>Incurred obligations were recorded in the correct period. (D)</p> Signup and view all the answers

    How can internal control over accounts payable be improved?

    <p>Purchase orders show approved prices. (C)</p> Signup and view all the answers

    Which task should not be assigned to the same employee to ensure proper internal control?

    <p>Prepare disbursement vouchers and sign checks. (B)</p> Signup and view all the answers

    Unrecorded liabilities are most likely identified in which document?

    <p>Unpaid bills. (B)</p> Signup and view all the answers

    Which procedure is least likely to be completed before the balance sheet date?

    <p>Search for unrecorded liabilities. (A)</p> Signup and view all the answers

    What internal control mechanism can help prevent fraudulent signature practices?

    <p>Using dual signatures on checks. (B)</p> Signup and view all the answers

    Which audit procedure is least likely to find an unrecorded liability?

    <p>Analysis and recomputation of interest expense. (B)</p> Signup and view all the answers

    Flashcards

    Overstatement of financial results

    Inaccurate financial reporting where values are higher than they should be.

    Confirmation of accounts payable

    Verifying the accuracy of accounts payable records with external parties.

    Accounts payable audit objective

    Determining if payments are accurate and proper, not just timely.

    Reliability of accounts payable evidence

    Evidence from accounts payable is often considered more reliable compared to receivables.

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    Inventory and accounts payable cutoff

    Matching inventory and payable transactions with the correct accounting period.

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    Officer accounts payable segregation

    Separating payable accounts of company officers from other payments.

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    Internal control over accounts payable

    Procedures to prevent errors and fraud in accounts payable processing.

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    Improper disbursement transactions

    Payments recorded for incorrect amounts or for unauthorized reasons.

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    Testing cash disbursements

    Auditor's procedures to evaluate if controls over cash payments are effective when documentary evidence is lacking

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    Proper billing verification

    Audit procedures to verify that goods shipped are correctly invoiced.

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    Unrecorded payable detection

    Audit procedure to find unpaid bills not recorded in the books.

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    Unauthorized expenditure check

    Procedure to identify checks issued for expenses not approved or documented properly.

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    Duplicate payable detection

    Audit technique to identify a double-recorded payable.

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    Sequential & unusual sales journal entries

    A test to spot missing sales entries or potential errors in the sales journal (e.g. skipped numbers).

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    Matching shipping documents to sales invoices

    Crucial audit check to ensure goods shipped are correctly billed.

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    Reconciling payable ledgers to sales summaries

    Comparison of payable ledgers to sales data to detect errors in accounting.

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    Completeness assertion (accounts payable)

    Ensuring all accounts payable are recorded in the financial statements.

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    Audit procedure for completeness (accounts payable)

    Examining documents supporting payments after year-end to find unrecorded liabilities.

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    Accrued liabilities audit approach

    Focuses on computing the accuracy of accrued amounts.

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    Key accounts payable assertion

    Completeness is a primary concern for accounts payable audits.

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    Accounts payable confirmation selection

    Focuses on accounts with high activity or balances for external verification.

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    Timing of accounts payable audit

    Most accounts payable audit work is done after the balance sheet date.

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    Accounts payable audit concern

    Unrecorded payables are difficult to find.

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    Accounts Payable Audit Objective

    Verifying the accuracy and completeness of recorded liabilities.

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    Accrued Liability Example

    A liability that arises from a transaction that has happened, but the payment hasn't been made yet. Examples include salaries, interests and taxes.

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    Accounts Payable Confirmation

    Verifying account balances with suppliers to validate the accuracy of outstanding invoices and balances.

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    Unrecorded Liability Search

    An audit process to identify liabilities that haven't been recorded on the financial statements, potentially due to overlooked invoices or unrecorded obligations.

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    Purchase Discount Ratio

    A ratio that compares the amount of cash discounts earned to purchases.

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    Accounts Payable Understatement

    Manipulation that makes payable amounts look lower than the actual value on the financial statements.

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    Accounts Payable Confirmation

    Method to validate and confirm accuracy of accounts payable balances by contacting the suppliers directly.

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    Confirmation of Accounts Payable

    A method for auditors to obtain confirmation that accounts payable are accurate by contacting suppliers.

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    Debit to Accounts Payable

    A deduction from the accounts payable balance, implying a decrease.

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    Unrecorded payable

    A payable that was not recorded in the accounting records.

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    Accounts payable confirmation

    The process of verifying the accuracy of recorded payable amounts with vendors.

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    Accrued liabilities vs. accounts payable

    Accrued liabilities accumulate gradually over time, unlike accounts payable, which are often triggered by specific transactions.

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    Duplicate payment prevention

    Control procedures to ensure an invoice is only paid once

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    Understatement of liabilities

    Financial reporting where the amount of liabilities is shown as lower than it should be.

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    Accounts payable confirmation form

    A document used to confirm the amount due from the vendor

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    Receiving report use

    Copies should go to certain departments, but not to others, to maintain proper internal control

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    Accounts payable aging

    Assessing the age of outstanding invoices to identify potential problematic accounts.

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    Unrecorded liabilities search timing

    Audit procedures to find unrecorded liabilities are typically completed after the balance sheet date.

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    Accounts payable voucher register sample

    Auditing a sample of vouchers payable from the last month to verify obligations were recorded in the correct period.

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    Improved accounts payable internal control

    Internal control in accounts payable is enhanced when purchase orders show approved prices, and payments are made after proper authorization, not just approval by the purchasing agent.

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    Employee segregation of duties (accounts payable)

    To prevent fraud an employee should not be permitted to both sign checks and cancel supporting documents, nor prepare disbursement vouchers and sign those checks.

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    Unrecorded liabilities detection method

    Unrecorded liabilities are often found by reviewing unpaid bills and unmatched sales invoices.

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    Audit procedure timing: inventory

    Proper inventory observation is often completed before the balance sheet date.

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    Audit procedure timing: unrecorded liabilities

    Searching for unrecorded liabilities is often completed after the balance sheet date.

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    Audit procedure timing: accounts payable review

    Confirming accounts payable is frequently done before the balance sheet date; it enhances accuracy and completeness of data.

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    Study Notes

    True/False Questions

    • Overstatement of financial results can involve failure to record a transaction. (TRUE)
    • Confirmation of accounts payable is a required generally accepted auditing procedure. (FALSE)
    • The primary objective of the auditors' examination of accounts payable is to determine whether payments are made on a timely basis. (FALSE)
    • Auditors generally consider the evidence regarding accounts payable in the client's possession as more reliable than that for accounts receivable. (TRUE)
    • Information regarding the proper cutoff of accounts payable is generally obtained in conjunction with the audit of inventories. (TRUE)
    • Accounts payable from an officer should be classified separately from other accounts payable. (TRUE)
    • It is more important to maintain effective internal control over accounts payable than to maintain effective internal control over accounts receivable. (FALSE)
    • For effective internal control over accounts payable, the purchasing department should approve invoices for payment. (FALSE)
    • Accounts payable generally present the auditors with difficult valuation problems. (FALSE)
    • The confirmation of existing accounts payable does not prove the completeness of recorded accounts payable. (TRUE)

    Multiple Choice Questions

    • Question 11: Identify procedures to detect improper transaction amounts:
      • A. Tracing from source documents to journals
      • B. Vouching from journals to source documents
      • Both tracing and vouching are appropriate
    • Question 12: Best description of a voucher under good internal control: A document prepared by Receiving that indicates the quantity received and approves payment.
    • Question 13: If audit trail of documentary evidence is missing, how do auditors test procedures:
      • Inquiry and analytical procedures.
    • Question 14: Test of controls to ensure goods shipped are billed correctly:
      • Examine shipping documents for matching sales invoices.
    • Question 15: Procedure best for identifying unrecorded trade accounts payable:
      • Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payable applies to the prior period.
    • Question 16: Population to test for unauthorized expenditures:
      • Approved vouchers.
    • Question 17: Controls to detect a duplicated payable:      - Footing the purchases journal.      - Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
    • Question 18: Account most likely credited when debit to accounts payable is found:      - Cost of goods sold.
    • Question 19: Example of an accrued liability:      - Product warranty liability.
    • Question 20: Analytical procedure to test purchase discounts:      - Compute the ratio of cash discounts earned to sales discounts.
    • Question 21: Reason why auditors may choose not to confirm accounts payable:      - Other reliable external evidence is available.
    • Question 22: Assertions most closely addressed in a search for unrecorded liabilities:      - Completeness.
    • Question 23: Manipulations that reduce accounts payable:      - Overstating purchase returns.
           - Closing the cash disbursements journal prior to year-end.
    • Question 24: Correct statement on accounts payable confirmations:      - Accounts with new suppliers are always confirmed.
    • Question 25: Relationship of confirmations to risk:      - Assertion risk.
    • Question 26: Procedure to test completeness assertion of accounts payable:     - Tracing shipping reports after year-end to related customer purchase orders and invoices.
    • Question 27: Approach to auditing accrued liabilities      - Test computations
    • Question 28: Correct statement on accounts payable and audit procedures:      - Because it is generally more difficult to discover a transaction that has not been recorded than to discover one that has been recorded incorrectly, the audit objective of completeness drives many of the substantive procedures applied to these balances.
    • Question 29: Primary assertion concern for auditors in examining accounts payable:      - Completeness.
    • Question 30: Criteria for selecting accounts payable for confirmation      - Accounts with large amounts of activity (regardless of balance).
    • Question 31: Timing of the majority of audit work on accounts payable:      - Before the balance sheet date
    • Question 32: Likely finding when understatement of liabilities is identified:      - Understatement of revenues.

    Other Questions

    • Question 33: Least likely procedure to detect an unrecorded payable:
      • Confirmation of year-end accounts payable
    • Question 34: Department a copy of receiving report should not be sent to:
      • Shipping.
    • Question 35: Possible outcome of a voucher system at year-end:      - Overstatement of expenses.
    • Question 36: Difference between accrued liabilities and accounts payable:      - Accrued liabilities accumulate over time.
    • Question 37: Form typically used to confirm accounts payable:      - Requires the vendor to indicate payable amount.
    • Question 38: Control procedure for accounts payable:      - Reconciliation of vendor statements with accounts payable.
    • Question 39: Best control to prevent paying an invoice twice:      - Requiring dual signatures on checks.
    • Question 40: When is the auditors' search for unrecorded liabilities complete:      - At the balance sheet date.
    • Question 41: Evidence gathered when tracing items in the vouchers payable register to underlying docs:      - Incurred obligations were recorded in the correct period.
    • Question 42: Internal control improvement for accounts payable:      - Payment is made upon approval of the purchasing agent.
    • Question 43: Employee not allowed to perform certain tasks (internal control):      - Sign checks and cancel supporting documents
    • Question 44: Documents likely to find unrecorded liabilities:      - Unmatched sales invoices
    • Question 45: Procedure least likely to be completed before balance sheet date:     - Confirmation of receivables.
    • Question 46: Audit procedure least likely to detect an unrecorded liability:      - Mailing of a cash confirmation form.
    • Question 47: Assertion most likely to be understated:      - Liabilities

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    Description

    Test your knowledge on the auditing of accounts payable with this true/false quiz. Assess your understanding of key procedures, classifications, and internal controls related to accounts payable. Perfect for students and professionals in auditing or accounting.

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