ACCT-6400 Auditing 2 - Chapter 11 - AP Audit

Substantive procedures to examine the occurrence assertion for accounts payable include:

• selecting a sample of vouchers and agreeing them to authorized purchase orders.

• comparing dates on vouchers to dates in the purchases journal.

• selecting a sample of vouchers and tracing them to the purchases journal.

• recomputing the mathematical accuracy of a sample of vendor invoices.

Answer explanation

Selecting a sample of vouchers and agreeing them to authorized purchase orders directly tests the occurrence assertion by verifying that recorded liabilities correspond to actual authorized transactions.

Which of the following test(s) of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?

• obtain listing of accounts payable and compare total to general ledger

• obtain selected vendors' statements and reconcile to vendor accounts

• review results of confirmations of selected accounts payable

• test a sample of purchase requisitions for proper authorization

Answer explanation

The correct choice, 'test a sample of purchase requisitions for proper authorization', serves as a dual-purpose test by assessing both the effectiveness of controls and the accuracy of transactions.

Accounts payable confirmations are used less frequently by auditors than accounts receivable confirmations.

• True

• FALSE

Answer explanation

True. Auditors use accounts payable confirmations less frequently than accounts receivable confirmations because receivables are more critical for assessing the entity's financial position and cash flow.

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

• The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment.

• The official who is signing the check should compare the check with the voucher and should "cancel" the voucher documents by marking them "paid."

• Disbursement vouchers should be approved by at least two responsible management officials.

• Vouchers should be prepared by individuals who are responsible for signing disbursement checks.

Answer explanation

The correct choice ensures that the official signing the check verifies the voucher and marks it as 'paid', preventing it from being submitted for payment again. This is a key internal control to avoid duplicate payments.

An auditor compares information on canceled checks with information contained in the cash disbursements journal, paying particular attention to the amount for which the check was issued and recorded. The objective of this test is to determine that:

• no discrepancies exist between the data on the checks and the data in the journal.

• proper cash purchase discounts have been recorded.

• cash disbursements are for goods and services actually received.

• recorded cash disbursement transactions are properly authorized.

Answer explanation

The auditor's comparison of canceled checks with the cash disbursements journal aims to ensure that no discrepancies exist between the amounts recorded and those on the checks, confirming accurate financial records.

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable?

• Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.

• Confirming accounts payable balances with known suppliers who have zero balances.

• Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

• Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to search for unrecorded vendor's invoices.

Answer explanation

Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports directly verifies the existence of recorded accounts payable by tracing them to supporting documentation.

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all:

• purchase orders.

• receiving reports.

• vendor invoices.

• canceled checks.

Answer explanation

The auditor needs to verify that all merchandise received is recorded, which is done by examining receiving reports. These reports document the actual receipt of goods, making them the correct choice for this test.

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

• Examination of unusual relationships between monthly accounts payable balances and recorded cash payments.

• Investigation of payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.

• Reconciliation of vendors’ statements to the file of receiving reports to identify items received just prior to the balance sheet date.

• Review of cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

Answer explanation

Reviewing cash disbursements after the balance sheet date helps identify unrecorded payables from the prior period, as it reveals payments made for expenses incurred before the reporting date.

Purchase cutoff procedures should be designed to test whether all inventory:

• purchased and received before the end of the year was recorded.

• owned by the entity is in the possession of the entity at the end of the year.

• ordered before the end of the year was received.

• purchased and received before the end of the year was paid for.

Answer explanation

Purchase cutoff procedures ensure that all inventory purchased and received before year-end is accurately recorded in the financial statements, preventing misstatements in the inventory balance.

Which of the following procedures is least likely to be performed before the balance sheet date?

• search for unrecorded liabilities

• observation of inventory

• test of internal control over cash

• confirmation of receivables

Answer explanation

The search for unrecorded liabilities is typically performed after the balance sheet date to identify any obligations that were not recorded, making it least likely to occur before the date compared to the other procedures.