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Exam 8: Acquisition and Expenditure Cycle

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Question 1

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To determine whether accounts payable are complete,auditors perform a test to verify that all merchandise received has been recorded.The population for this test consists of all

A) vendors' invoices.
B) purchase orders.
C) receiving reports.
D) canceled checks.

E) All of the above
F) None of the above

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Question 2

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An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for

A) examining authorization forms for new employees.
B) comparing payroll registers with original batch transmittal data.
C) distribute payroll checks to all employees.
D) hiring all subordinate payroll department employees.

E) None of the above
F) C) and D)

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Question 3

Multiple Choice

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Matthew Corp.has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards.The computerized system automatically updates all payroll records.Because of this change,

Purchases are requisitioned by a purchasing department that seeks the best prices and quality.

Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?

A CPA learns that his client has paid a vendor twice for the same shipment; once based upon the original invoice and once based upon the monthly statement sent from the vendor.A control procedure that should have prevented this duplicate payment is

This question requires knowledge of specific account balance assertions,general audit procedures,and trade accounts payable. You are assigned to audit the accounts payable of Green Corporation whose business is wholesale and retail trade.The company purchases products from 1,002,000 manufacturers ("vendors")and sells the products to its retail and wholesale customers.The general ledger shows the Accounts Payable control balance as of the balance-sheet date in the amount of $42 million (which is 70 percent of current liabilities,50 percent of total liabilities,and 35 percent of total liabilities and owners' equity).Green's management accountants post the summary entries from the purchases journal and from the cash disbursements journal each month to the Accounts Payable control account.The accounts payable manager gave you a detailed trial balance that lists all recorded unpaid invoices (recording date,vendor name,vendor invoice number,invoice date,and amount)subtotaled by vendor. Other members of the audit team have already decided to assess control risk at the maximum for the accounts payable work.The engagement manager gave you last year's audit working papers but said the audit plan was missing (!).Thus,the first part of your assignment is to write the audit plan for audit of the Green Corporation trade accounts payable. Required: For each of the balance assertions (existence,completeness,and valuation or and allocation),write two or more specific audit procedures designed to produce evidence related to the accounts payable balance of $42 million. (Hints: [1] For each of the three balance assertions,think about a specific assertion before you write a procedure to gather evidence.[2] Write specific procedures as adaptations of the general audit procedures: recalculation,observation,confirmation,document examination,inquiry,scanning,analytical procedures.[3] Most procedures are two-part statements: "Select a sample of...[identify the population]...and "do something"...[specify an action].) There may be other correct answers to this question

A liability for a long-term purchase contract should generally be recognized when

Assessment of _____________________________ of __________________________________ is important because it governs the nature,timing,and extent of substantive procedures that will be applied in the audit of account balances in the acquisition cycle. Question also found in study guide

Unrecorded liabilities can be prevented if there is an appropriate segregation of duties in accounts payable.

Specific balance assertions typical of accounts payable would not include

After checks are signed for vendor invoices,why should vouchers be marked PAID or otherwise mutilated?

The auditor traces items from the receiving reports to the accounts payable journal in order to satisfy the

Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?

Small Corporation uses a Wages Clearing Account for its payroll disbursements.At the end of February,a reasonably large debit balance remained in this account.The most likely reason for this is that

When goods are received,the receiving clerk should match the goods with the

Which of the following is not a major control risk in the payroll cycle?

A personnel file should establish the reality of a person's _______________________ and ____________________________. Question also found in study guide

A _____________________________ is a cover sheet containing all supporting documentation for an acquisition. Question also found in study guide

The sampling unit in a test of controls pertaining to the existence or occurrence of payroll transactions ordinarily is a(an)