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Product warranty liability
D) Cost of goods sold.
Confirmation obtains evidence identical to that obtained by cutoff tests.
Other reliable external evidence to support the balances is likely to be available.
A reading of the corporate minutes reveals that confirmation is unnecessary.
The balances due will have changed between the year-end and the date of confirmation.
Scan the sales journal for sequential and unusual entries
Examine shipping documents for matching sales invoices
Compare the accounts receivable ledger to daily sales summaries
Inspect unused sales invoices for consecutive pre-numbering
A) The negative form is used in most circumstances
B) Accounts with new suppliers are always confirmed
C) They are a required auditing procedure
They are more frequently used in situations in which some vendors don't send monthly statements
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.
) Examining unusual relationships between monthly accounts payable balances and recorded cash payments
Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.
Footing the purchases journal.
) Reconciling vendors' monthly statements with subsidiary payable ledger accounts
Tracing totals from the purchases journal to the ledger accounts.
Sending written quarterly confirmations to all vendors.
Overstatement of purchases
Closing the cash disbursements journal prior to year-end
Leaving the cash receipts journal open after year-end
Overstating purchase returns
A) Assertion risk.
B) Detection risk.
C) Inherent risk.
D) Relative risk.
A) Footing the list of accounts payable.
Examining underlying documentation for cash disbursements in the period after year-end.
Tracing shipping reports issued on or before year-end to related customer purchase orders and invoices.
Tracing shipping reports after year-end to related customer purchase orders and invoices.
D) A low planned assessed level of control risk.
A) Accumulate over time.
B) Are usually confirmed at year-end.
C) Depend upon the existence of a transaction for original recording of the account.
D) Are never included in cost of goods sold.
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.
A judgment whether an unrecorded payable should be recorded before the financial statements are prepared depends entirely upon the source of the payable
The confirmation of accounts payable selected from the year-end trial balance of such accounts is most effective in discovering unrecorded liabilities
Unrecorded payables are often discovered through examining vouchers payable entered into the voucher register prior to the balance sheet date.
A) Periodic confirmation of accounts payable.
B) Mailing statements to vendors detailing their account.
C) Periodic aging of accounts payable.
D) Reconciliation of vendor statements with accounts payable.
A) Accounts with large balances.
B) Accounts with zero balances.
C) Accounts with a large amount of activity regardless of their balance.
D) Accounts for which vendor statements are available.
A) Accounts payable.
A) Understatement of liabilities.
B) Overstatement of assets.
C) Understatement of owners' equity.
D) Overstatement of expenses.
A) Understatement of assets.
B) Understatement of owners' equity.
C) Overstatement of expenses.
D) Understatement of revenues.
A) Examination of invoices received after year-end.
B) Examination of vouchers payable entered in the January voucher register.
Examination of January receiving reports prepared for goods shipped FOB destination in December to the client
D) Confirmation of year-end accounts payable.
A) Before the balance sheet date.
B) At the balance sheet date in conjunction with inventory cutoff tests.
C) After the balance sheet date.
D) Simultaneously with the audit of accrued liabilities.
A) Does not require a response from the vendor.
B) Confirms the balance recorded by the client at year-end.
C) Requires the vendor to indicate the amount of the payable.
D) Is the same as the form used to confirm accounts receivable.
A) Review of supporting documentation by the person signing the check.
B) Requiring dual signatures on checks.
C) Use of a check protector.
D) Reconciliation of vendor statements to accounts payable.
A) Sign checks and cancel supporting documents.
B) Receive merchandise and prepare a receiving report.
C) Prepare disbursement vouchers and sign checks.
D) Initiate a request to order merchandise and approve merchandise received.
A) During an interim period.
B) At the balance sheet date.
C) Subsequent to the balance sheet date.
D) At any time during the examination.
A) Observation of inventory.
B) Review of internal control over cash disbursements.
C) Search for unrecorded liabilities.
D) Confirmation of receivables.
A) Recorded obligations were paid.
B) Incurred obligations were recorded in the correct period.
C) Recorded obligations occurred prior to year-end.
D) Cash disbursements were recorded as incurred obligation.
A) Unpaid bills.
B) Shipping records.
C) Bills of lading.
D) Unmatched sales invoices.
A) Purchase orders show approved prices.
B) Informal bids are obtained.
C) Annual trial balance of accounts payable subsidiary ledgers is required.
D) Payment is made upon approval of the purchasing agent.
A) Analysis and recomputation of interest expense.
B) Analysis and recomputation of depreciation expense.
C) Mailing of a cash confirmation form.
D) Reading of the minutes of meetings of the board of directors.