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Exam 12: The Purchases, Payables, and Payments Process

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Question 31

Multiple Choice

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When auditing merchandise inventory at year-end,the auditor performs a purchase cutoff test to obtain evidence that ________.

A) all goods purchased before year-end are received before the physical inventory count
B) goods held on consignment for customers are not included in the inventory balance
C) the stock of inventory on hand at year-end is neither pledged nor sold
D) all goods owned at year-end are included in the inventory balance

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Question 32

Multiple Choice

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

A) Reconcile receiving reports with related cash payments made just prior to year-end.
B) Compare the ratio of accounts payable to purchases with the prior year's ratio.
C) Vouch a sample of creditor balances to supporting invoices,receiving reports,and purchase orders.
D) Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

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Question 33

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"Observe if personnel in the purchasing department are following company policies" is an audit procedure intended to test which control objective?

Which control objective is associated with observing the inventory record-keeping personnel as they perform their work?

Quantities recorded during the physical count of inventories are greater than the quantities in the perpetual records.This could be the result of a failure to record ________.

The requirement that "perpetual inventory records must be updated as of the date goods are received" is an example of a control that satisfies the "proper period" internal control objective.

If the auditor traces a sample of receiving reports to the perpetual inventory records,the auditor is testing the control of validity.

The accounts payable trial balance should not include vendors with nonzero balances.

Why are payables vouchers marked "paid" after cheques have been issued in payment of vendor invoices?

Purchase cutoff procedures should be designed to produce evidence about whether or not merchandise that is included in the inventory of the company ________.

Identify situations when the auditor should use accounts payable confirmations and discuss whether they are required to use them.

When the auditor selects a sample of inventory items from the perpetual inventory master file then searches out these items in the inventory warehouse,the auditor is collecting evidence to support which assertion?

The control objective associated with selecting a sample of receiving reports and tracing them to the perpetual inventory records is ________.

In assessing control risk for purchases,an auditor vouches a sample of entries in the accounts payable trial balance to the supporting documents.Which account assertion would this test of controls most likely support?

In "Amortize the 'Drum' Slowly",Candid Production overvalued net assets by taking too little amortization.Which of the following was the lesson for the auditors in this case?

What issues must the auditor consider if the client has inventory located away from the client's place of business?

Briefly explain why the auditor's inventory tests counts are conducted in two directions.