Chapter 11 - Auditing the Purchasing Process

Multiple Choice Questions

11. A product cost is

A. An expense allocated by a systematic procedure
B. Recognized during the period in which a liability is incurred
C. Recognized in the period during which related revenue is recognized
D. Recognized in the period in which cash is spent

12. Which of the following accounts is not affected by cash disbursement transactions?
A. Cash
B. Accounts payable
C. Purchase discounts
D. Purchase returns

13. A debit memo

A. Reduces the amount of accounts payable to a vendor
B. Reduces accounts payable when payment is made
C. Is used by vendors to record cash payments received
D. Authorizes a debit to purchases when goods are received

14. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to
the supporting documents. Which assertion would this test of controls most likely support?
A. Completeness
B. Occurrence
C. Accuracy
D. Classification

15. The occurrence assertion for accounts payable includes

A. Determining whether all accounts payable are recorded
B. Determining whether all accounts payable actually are liabilities
C. Determining whether all accounts payable are recorded in the proper period
D. Determining whether all accounts payable are properly classified in the financial statements

16. The cutoff assertion for accounts payable includes

A. Determining whether all accounts payable are recorded
B. Determining whether all accounts payable actually are liabilities
C. Determining whether all accounts payable are recorded in the proper period
D. Determining whether all accounts payable are properly classified in the financial statements

17. The accounts payable department receives the purchase order form to accomplish all of the following
except to
A. Compare invoice price to purchase order price
B. Ensure that the purchase had been properly authorized
C. Ensure that the goods had been received by the party requesting the goods
D. Compare quantity ordered to quantity purchased

18. Unrecorded liabilities are most likely to be found during the review of which of the following documents?
A. Unpaid bills
B. Shipping records
C. Bills of lading
D. Unmatched sales invoices

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19. 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
A. Payment vouchers
B. Receiving reports
C. Purchase requisitions
D. Vendor's invoices

20. The cash disbursements journal also is called the

A. Voucher register
B. Purchases journal
C. Check register
D. Accounts payable subsidiary ledger

21. An important primary purpose of the auditor's review of the client's procurement system should be to
determine the effectiveness of the activities to protect against
A. Improper materials handling
B. Unauthorized persons issuing purchase orders
C. Mispostings of purchase returns
D. Excessive shrinkage or spoilage

22. A client erroneously recorded a large purchase twice. Which of the following internal controls would be
most likely to detect this error in a timely and efficient manner?
A. Footing the purchases journal
B. Reconciling vendors' monthly statements with subsidiary payable ledger accounts
C. Tracing totals from the purchases journal to the ledger accounts
D. Sending written quarterly confirmations to all vendors

23. An auditor performs a test to determine whether all merchandise for which the client was billed was
received. The population for this test consists of all
A. Merchandise received
B. Vendors' invoices
C. Canceled checks
D. Receiving reports

24. An auditor compares information on canceled checks with information contained in the cash disbursements
journal. The objective of this test is to determine that
A. Recorded cash disbursement transactions are properly authorized
B. Proper cash purchase discounts have been recorded
C. Cash disbursements are for goods and services actually received
D. No discrepancies exist between the data on the checks and the data in the journal

25. Which of the following procedures would an auditor most likely perform in searching for unrecorded
payables?
A. Reconcile receiving reports with related cash payments made just prior to year-end
B. Contrast 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

26. Tests designed to detect purchases made before the end of the year that have been recorded in the
subsequent year most likely would provide assurance about management's assertion of
A. Accuracy
B. Occurrence
C. Cutoff
D. Classification

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27. The audit procedures used to verify accrued liabilities differ from those employed for the verification of
accounts payable because
A. Accrued liabilities usually pertain to services of a continuing nature, while accounts payable are the result of
completed transactions
B. Accrued liability balances are less material than accounts payable balances
C. Evidence supporting accrued liabilities is nonexistent, while evidence supporting accounts payable is readily
available
D. Accrued liabilities at year-end will become accounts payable during the following year

28. The auditor is most likely to verify accrued commissions payable in conjunction with the
A. Sales cutoff review
B. Verification of employees
C. Review of post balance sheet date disbursements
D. Examination of trade accounts payable

29. Which of the following procedures relating to the examination of accounts payable could the auditor
delegate entirely to the client's employees?
A. Test footings in the accounts payable ledger
B. Reconcile unpaid invoices to vendors' statements
C. Prepare a schedule of accounts payable
D. Mail confirmations for selected account balances

30. Which of the following audit procedures is least likely to detect an unrecorded liability?
A. Analysis and recomputation of interest expense
B. Analysis and recomputation of depreciation expense
C. Mailing of standard bank confirmation forms
D. Reading of the minutes of meetings of the board of directors

31. A client's procurement system ends with the assumption of a liability and the eventual payment of the
liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting
from the procurement system?
A. Accounts payable are not materially understated
B. Authority to incur liabilities is restricted to one designated person
C. Acquisition of materials is not made from one vendor or one group of vendors
D. Commitments for all purchases are made only after established competitive bidding procedures are followed

32. For effective internal control, the accounts payable department should compare the information on each
vendor's invoice with the
A. Receiving report and the purchase order
B. Receiving report and the voucher
C. Vendor's packing slip and the purchase order
D. Vendor's packing slip and the voucher

33. The authority to accept incoming goods in receiving should be based on a(an):
A. Vendor's invoice
B. Materials requisition
C. Bill of lading
D. Approved purchase order

34. A voucher
A. Is a bill from the vendor
B. Is a document that records the receipt of goods
C. Is a document that requests goods from an authorized individual in the entity
D. Serves as the basis for recording a vendor's invoice in the purchases journal

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35. Operating control over the check signature plate normally should be the responsibility of the
A. Secretary
B. Chief accountant
C. Vice president of finance
D. Treasurer

36. In testing controls over cash disbursements, an auditor most likely would determine that the person who
signs the checks also
A. Reviews the monthly bank reconciliation
B. Returns the checks to accounts payable
C. Is denied access to the supporting documents
D. Is responsible for mailing the checks

37. With respect to a small company's system of purchasing supplies, an auditor's primary concern should be
to obtain satisfaction that supplies ordered and paid for have been
A. Requested and approved by authorized individuals who have no incompatible duties
B. Received, counted, and checked to quantities and amounts on purchase orders and invoices
C. Properly recorded as assets and systematically amortized over the estimated useful life of the supplies
D. Used in the course of business and solely for business purposes during the year under audit

38. As an in-charge auditor, you are reviewing a summary of control weaknesses in cash disbursement
procedures. Which one of the following weaknesses, standing alone, should cause you the least concern?
A. Checks are signed by only one person
B. Signed checks are distributed by the controller to approved payees
C. Treasurer fails to establish validity of names and addresses of check payees
D. Cash disbursements are made directly out of cash receipts

39. Tests of controls for the occurrence assertion for purchases include all of the following except
A. Evaluating proper segregation of duties
B. Testing a sample of vouchers for an authorized purchase order
C. Testing a sample of vouchers for matching receiving reports
D. Tracing a sample of vouchers to purchases journal

40. An internal control questionnaire indicates that an approved receiving report is required to accompany
every check request for payment of merchandise. Which of the following procedures provides the greatest
assurance that this control is operating effectively?
A. Select and examine receiving reports and ascertain that the related canceled checks are dated no earlier
than the receiving reports
B. Select and examine receiving reports and ascertain that the related canceled checks are dated no later than
the receiving reports
C. Select and examine canceled checks and ascertain that the related receiving reports are dated no earlier
than the checks
D. Select and examine canceled checks and ascertain that the related receiving reports are dated no later than
the checks

41. An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control
activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by
A. Inquiry and analytical procedures
B. Confirmation and observation
C. Observation and inquiry
D. Analytical procedures and confirmation

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42. An entity's internal control requires that for every check request there be an approved voucher, supported
by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are
being issued for unauthorized expenditures, an auditor most likely would select items for testing from the
population of all
A. Purchase orders
B. Canceled checks
C. Receiving reports
D. Approved vouchers

43. To provide assurance that each voucher is submitted and paid only once, an auditor most likely would
examine a sample of paid vouchers and determine whether each voucher is
A. Supported by a vendor's invoice
B. Stamped "paid" by the check signer
C. Prenumbered and accounted for
D. Approved for authorized purchases

44. Which of the following is the most effective control activity to detect vouchers prepared for the payment of
goods that were not received?
A. Counting of goods upon receipt in the storeroom
B. Matching of purchase order, receiving report, and vendor invoice for each voucher in the accounts payable
department
C. Comparison of goods received with goods requisitioned in the receiving department
D. Verification of vouchers for accuracy and approval in the internal audit department

45. When an auditor selects a sample of items from the vouchers payable register for the last month of the
period under audit and traces these items to underlying documents, the auditor is gathering evidence primarily
in support of the assertion that
A. Recorded obligations were paid
B. Incurred obligations were recorded in the correct period
C. Recorded obligations were valid
D. Cash disbursements were recorded as incurred obligations

46. An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal
and the cash disbursements journal. The purpose of this substantive procedure most likely was to
A. Identify unusually large purchases that should be investigated further
B. Verify that cash disbursements were for goods actually received
C. Determine that purchases were properly recorded
D. Test whether payments were for goods actually ordered

47. Substantive procedures to examine the occurrence assertion for accounts payable include
A. Selecting a sample of vouchers and agreeing them to authorized purchase orders
B. Selecting a sample of vouchers and tracing them to the purchases journal
C. Comparing dates on vouchers to dates in the purchases journal
D. Recomputing the mathematical accuracy of a sample of vendor invoices

48. Substantive procedures to examine the completeness assertion for accounts payable include
A. Selecting a sample of vouchers and agreeing them to authorized purchase orders
B. Selecting a sample of vouchers and tracing them to the purchases journal
C. Comparing dates on vouchers to dates in the purchases journal
D. Recomputing the mathematical accuracy of a sample of vendor invoices

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49. Substantive procedures to examine the cutoff assertion for accounts payable include
A. Selecting a sample of vouchers and agreeing them to authorized purchase orders
B. Selecting a sample of vouchers and agreeing them to the purchases journal
C. Selecting a sample of receiving reports around year-end and comparing dates on related vouchers to dates
in the purchases journal
D. Recomputing the mathematical accuracy of a sample of vendor invoices

50. Purchase cutoff procedures should be designed to test whether or not all inventory
A. Purchased and received before the year-end was recorded before year-end
B. On the year-end balance sheet was carried at lower of cost or market
C. On the year-end balance sheet was paid for by the company
D. Owned by the company is in the possession of the company

51. When searching for unrecorded liabilities at year-end, the population identified for sampling would be
A. Cash receipts from related parties recorded before year-end
B. Creditors whose accounts appear on a subsidiary trial balance of accounts payable
C. Cash disbursements recorded in the period subsequent to year-end
D. Invoices dated a few days before and after year-end

52. Which of the following is a substantive procedure that an auditor most likely would perform to verify the
existence of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and
accounted for
B. Receiving the client's mail, unopened, for a reasonable period of time after the year-end to search for
unrecorded vendor's invoices
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving
reports
D. Confirming accounts payable balances with known suppliers who have zero balances

53. Which of the following procedures would an auditor most likely perform in searching for unrecorded
liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving
report file
B. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial
balance
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor
invoices
D. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions

54. Which of the following procedures would an auditor least likely perform before the balance sheet date?
A. Assessment of inherent risk
B. Observation of merchandise inventory
C. Assessment of control risk
D. Identification of related parties

55. An examination of the balance in the accounts payable account is ordinarily not designed to
A. Determine that the amounts represent obligations of the company
B. Verify that accounts payable were properly authorized
C. Ascertain the reasonableness of recorded liabilities
D. Determine that all existing liabilities at the balance sheet date have been recorded

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56. Accounts payable confirmations are used to test
A. Both the existence and completeness audit assertions
B. Only the existence audit assertion
C. Only the completeness audit assertion
D. Either existence or completeness, depending upon the response rate

57. If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to
A. Primarily vendors with large accounts payable balances
B. Primarily vendors with small or zero accounts payable balances
C. All vendors
D. A random sample of all vendors

58. In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's
assertion of
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation and allocation

59. Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a retail hardware
store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a C.O.D. basis,
thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this
because of Lake's poor internal control over
A. Purchase requisitions
B. Cash receipts
C. Perpetual inventory records
D. Purchase orders

60. Which of the following control activities is not usually performed in the accounts payable department?
A. Determining the mathematical accuracy of the vendor's invoice
B. Having an authorized person approve the voucher
C. Controlling the mailing of the check and remittance advice
D. Matching the receiving report with the purchase order

61. Which of the following is an internal control that would prevent a paid disbursement voucher from being
presented for payment a second time?
A. Vouchers should be prepared by individuals who are responsible for signing disbursement checks
B. Disbursement vouchers should be approved by at least two responsible management officials
C. The date on a disbursement voucher should be within a few days of the date the voucher is presented for
payment
D. The official signing the check should compare the check with the voucher and should "cancel" the voucher
documents by marking them "paid"

62. The mailing of disbursement checks and remittance advices should be controlled by the employee who
A. Signed the checks last
B. Approved the vouchers for payment
C. Matched the receiving reports, purchase orders and vendors' invoices
D. Verified the mathematical accuracy of the vouchers and remittance advices

63. Assertions about classes of transactions and events for the period under audit include:
A. Existence, completeness, and accuracy.
B. Existence, completeness, and classification.
C. Occurrence, completeness, and cutoff.
D. Occurrence, completeness, and valuation and allocation.

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64. Assertions about account balances at the period end include:
A. Existence, completeness, and accuracy.
B. Existence, completeness, and classification.
C. Existence, rights and obligations, and completeness.
D. Existence, rights and obligations, and classification.

65. The following test(s) of details of transactions can be used as a dual-purpose test in conjunction with tests
of controls:
A. Test a sample of purchase requisitions for proper authorization.
B. Obtain selected vendors' statements and reconcile to vendor accounts.
C. Obtain listing of accounts payable and compare total to general ledger.
D. Review results of confirmations of selected accounts payable.

66. Which of the following questions would most likely be included in an internal control questionnaire
concerning the completeness assertion for purchases?
A. Is an authorized purchase order required before the receiving department can accept a shipment or the
vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have
access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

67. If payables turnover has increased significantly since the prior year, this is an indication that which of the
following assertions for accounts payable might be violated?
A. Existence or occurrence
B. Completeness
C. Rights and obligations
D. Valuation and allocation

68. Which of the following describes a temporary difference?

A. A difference that will be corrected in an amended tax return.
B. A difference arising from an uncertain tax position.
C. A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes.
D. A timing difference between the recognition of revenue or expense under GAAP and tax.

69. Which of the following describes a permanent difference?

A. A difference that will be corrected in an amended tax return.
B. A difference arising from an uncertain tax position.
C. A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes.
D. A timing difference between the recognition of revenue or expense under GAAP and tax

70. In a properly designed AP system, a voucher is prepared after the invoice, PO, requisition, and receiving
report are verified. The next step in the system is:
a. Cancellation of the supporting documents
b. Entry of the check amount in the check register
c. Entering of the voucher into the voucher register
d. Approval of the voucher for payment

71. When goods are received, the receiving clerk should match the goods with
a. the purchase order and the requisition form
b. The vendor invoice and the purchase order
c. the vendor shipping document and the purchase order
d. the vendor invoice and the vendor shipping document

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72. Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the
purchase order sent to the
a. department that initiated the requisition
b. receiving department
c. purchasing agent
d. accounts payable department

73. Which of the following control activities is not usually performed in the AP department?
a. matching the vendor's invoice with the related receiving report
b. approving vouchers for payment by having an authorized employee sign the vouchers
c. indicating the asset and expense accounts to be debited
d. accounting for unused prenumbered purchase orders and receiving reports

74. In a properly designed purchasing process, the same employee most likely would match vendors' invoices
with receiving reports and
a. post the detailed AP records
b. recompute the calculations on the vendors' invoices
c. reconcile the accounts payroll ledger
d. cancel vendors invoices after payment

75. For effective internal control purposes, which of the following individuals should be responsible for mailing
signed checks?
a. receptionist
b. treasurer
c. accounts payable clerk
d. payroll clerk

76. To determine whether AP 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
a. vendor invoices
b. purchase orders
c. receiving reports
d. canceled checks

77. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
a. examination of unusual relationships between monthly accounts payable and recorded cash payments
b. reconciliation of vendors statements to the file of receiving reports to identify items received just prior to the
balance sheet date
c. investigation of payables recorded just prior to and just subsequent to the balance sheet date to determine
whether they are supported by receiving reports
d. review of cash disbursements recorded subsequent to the balance sheet date to determine whether the
related payables apply to the prior period

78. Purchase cutoff procedures should be designed to test whether all inventory
a. purchased and received before the end of the year was paid for
b. ordered before the end of the year was received
c. purchased and received before the end of the year was recorded
d. owned b the entity is in the possession of the entity at the end of the year

79. Which of the following procedures is least likely to be performed before the balance sheet date?
a. test of internal control over cash
b. confirmation of receivables
c. search for unrecorded liabilities
d. observation of inventory

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80. When using confirmations to provide evidence about the completeness assertion for accounts payable, the
appropriate population most likely would be
a. vendors with whom the entity has previously done business
b. amounts recorded in the AP subsidiary ledger
c. payees of checks drawn in the month after year-end
d. invoices filed in the entity's open invoice file

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