Questions and Answers
What is the main objective of auditing accounts payable and notes payable?
What does the completeness assertion in auditing trade payables involve?
Ensuring that all transactions relating to payables have been properly recorded
Cut-off testing involves matching purchases and disbursements before and after the balance sheet cut-off date.
True
The audit program for trade payables includes a procedure called 'Search for _______ Liabilities'.
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Match the following audit assertions with their descriptions:
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Cut-off testing involves obtaining a schedule of purchases and disbursements before and after the ______ date.
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What is the objective of auditing liabilities in the balance sheet?
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If subsequent disbursement pertains to transactions that should be recorded as of cut-off date, it should be recorded subsequently instead.
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What is the purpose of confirming major balances of trade payables in an audit?
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Match the following audit assertions for Notes Payable with their respective audit procedures:
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Study Notes
Audit Objectives for Liabilities
- Ensure all liabilities on the balance sheet are real debts due to suppliers or other creditors
- Verify all liabilities owed by the entity at the balance sheet date are included on the balance sheet
- Confirm accounts payable are stated at the amounts owed at the balance sheet date
- Verify accounts payable in the balance sheet represent obligations of the entity at the balance sheet date
- Ensure accounts payable are properly classified, described, and disclosed in financial statements
Audit Program for Trade Payables
Completeness
- Reconcile subsidiary ledger with general ledger for trade payables
- Investigate significant differences between subsidiary ledger and trial balance
Cut-Off Testing
- Obtain schedule of purchases and disbursements before and after cut-off date
- Select samples and inspect supporting documents to ensure proper recording in the correct period
- Trace transactions from supporting documents to purchase journal and cash disbursement journal
Search for Unrecorded Liabilities
- Obtain subsequent disbursements and match with vendor's invoice to initial entry
- Examine and assess correctness of recording in proper accounting period
- Identify unrecorded liabilities that should be recorded as of cut-off date
Existence
- Obtain trade payable schedule before and after cut-off date
- Compare balances in schedule based on reference number to determine if liability has been paid
- Obtain proof of payment to verify existence of liability
Valuation and Accuracy
- Obtain schedule of trade payables in foreign currency
- Perform independent translation using closing rate
- Compare computed amount with amount recorded per books
Rights and Obligations
- Check documents to ensure company is the payor
- Examine subsequent payments to creditors to verify validity of claims
Presentation and Disclosure
- Ensure trade payables are properly presented in financial statements under current liabilities
- Verify other disclosures tackle trade payables as part of financial liabilities
Notes Payable
Completeness
- Reconcile subsidiary ledger with general ledger for notes payable
- Match principal amount with balance per books
- Obtain promissory notes and match amounts with listing of notes payable and balance per books
Existence
- Vouch new promissory notes during the year
- Confirm balances through confirmation
Accuracy
- Test valuation for foreign-currency denominated transactions
- Recompute interest expense and carrying amount of notes payable
Rights and Obligations
- Check documents to ensure company is the payor
- Examine proper authorization from management or assigned personnel
Disclosure
- Ensure notes payable are properly presented in financial statements under current liabilities
- Verify other disclosures tackle notes payable as part of financial liabilities
Audit Objectives for Liabilities
- Ensure all liabilities on the balance sheet are real debts due to suppliers or other creditors
- Verify all liabilities owed by the entity at the balance sheet date are included on the balance sheet
- Confirm accounts payable are stated at the amounts owed at the balance sheet date
- Verify accounts payable in the balance sheet represent obligations of the entity at the balance sheet date
- Ensure accounts payable are properly classified, described, and disclosed in financial statements
Audit Program for Trade Payables
Completeness
- Reconcile subsidiary ledger with general ledger for trade payables
- Investigate significant differences between subsidiary ledger and trial balance
Cut-Off Testing
- Obtain schedule of purchases and disbursements before and after cut-off date
- Select samples and inspect supporting documents to ensure proper recording in the correct period
- Trace transactions from supporting documents to purchase journal and cash disbursement journal
Search for Unrecorded Liabilities
- Obtain subsequent disbursements and match with vendor's invoice to initial entry
- Examine and assess correctness of recording in proper accounting period
- Identify unrecorded liabilities that should be recorded as of cut-off date
Existence
- Obtain trade payable schedule before and after cut-off date
- Compare balances in schedule based on reference number to determine if liability has been paid
- Obtain proof of payment to verify existence of liability
Valuation and Accuracy
- Obtain schedule of trade payables in foreign currency
- Perform independent translation using closing rate
- Compare computed amount with amount recorded per books
Rights and Obligations
- Check documents to ensure company is the payor
- Examine subsequent payments to creditors to verify validity of claims
Presentation and Disclosure
- Ensure trade payables are properly presented in financial statements under current liabilities
- Verify other disclosures tackle trade payables as part of financial liabilities
Notes Payable
Completeness
- Reconcile subsidiary ledger with general ledger for notes payable
- Match principal amount with balance per books
- Obtain promissory notes and match amounts with listing of notes payable and balance per books
Existence
- Vouch new promissory notes during the year
- Confirm balances through confirmation
Accuracy
- Test valuation for foreign-currency denominated transactions
- Recompute interest expense and carrying amount of notes payable
Rights and Obligations
- Check documents to ensure company is the payor
- Examine proper authorization from management or assigned personnel
Disclosure
- Ensure notes payable are properly presented in financial statements under current liabilities
- Verify other disclosures tackle notes payable as part of financial liabilities
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Description
This quiz covers the audit of accounts payables and notes payable, including audit objectives for liabilities and ensuring all liabilities are real debts due to suppliers or creditors.
