Auditing Accounts Payable Quiz

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