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.</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.</p> Signup and view all the answers

    Which procedure would best help identify improper disbursement transaction amounts?

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

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

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

    Which of the following best exemplifies an accrued liability?

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

    Why might an auditor decide not to confirm accounts payable?

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

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

    <p>Completeness</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</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</p> Signup and view all the answers

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

    <p>Detection risk</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.</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.</p> Signup and view all the answers

    What is the main audit objective related to accounts payable?

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

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

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

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

    <p>Shipping</p> Signup and view all the answers

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

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

    Accrued liabilities primarily differ from accounts payable in that they:

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

    When should the auditors complete their search for unrecorded liabilities?

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

    How can internal control over accounts payable be improved?

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

    Unrecorded liabilities are most likely identified in which document?

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

    What internal control mechanism can help prevent fraudulent signature practices?

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

    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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