MC CH 16,17, 18

1) The two primary classes of transactions in the sales and collection cycle are:
B) sales and cash receipts.
2) The appropriate and sufficient evidence to be obtained from tests of details must be decided
on an:
C) audit objectives basis.
3) Auditors are especially concerned with three aspects of internal control for the sales and
collection cycle. Which of the following is not one of their major concerns?
C) Controls over sales discounts
4) For sales, the occurrence transaction-related audit objective affects which of the following
balance-related audit objective?
A) Existence
5) For cash receipts, the occurrence transaction-related audit objective affects which of the
following balance-related audit objective?
B) Completeness
1) Which of the following types of receivables would not deserve the special attention of the
auditor?
D) Each of the above would receive special attention.
2) Analytical procedures are substantive tests and, if the results of the analytical procedures are
favorable, the auditor would normally:
A) reduce the extent of tests of details of balances.
3) Analytical procedures:
B) performed during the detailed testing phase are done before tests of details of balances.
4) Which of the following is a correct statement regarding analytical procedures?
B) Auditors should also compare the results of their analytical procedures to budgets and
industry trends.
5) An auditor is comparing the write-off of uncollectible accounts as a percentage of total
accounts receivable with previous years. A possible misstatement this procedure could uncover
is:
C) overstatement or understatement of bad debt expense.
1) The understatement of sales and accounts receivable is best uncovered by:
C) substantive tests of transactions for shipments made but not recorded.
2) Tests of which balance-related audit objective are normally performed first in an audit of the
sales and collection?
D) Detail tie-in
3) A listing of the balances in the accounts receivable master file at the balance sheet date, by
total balance outstanding and by the amount of time the component parts have been outstanding,
is the:
B) aged trial balance.
4) Testing the information on the aged trial balance for detail tie-in is a necessary audit
procedure, which would normally include:
A)
Test-footing the total column Comparing the total of the aged trial balance
and the columns depicting the with the general ledger accounts receivable
aging account
Yes Yes
5) Audit procedures designed to uncover credit sales made after the client's fiscal year end that
relate to the current year being audited provide evidence for which of the following audit
objective?
C) Cutoff
6) Cutoff misstatements occur when:
C)
The auditor fails to obtain
the end-of-year bank
statement directly from the Subsequent period Current period
bank, obtaining instead the transactions are transactions are
statement which includes recorded in the recorded in the
the two succeeding weeks current period subsequent period
No Yes Yes

7) Cutoff misstatements occur:

A) either by error or fraud.
8) Which of the following is likely to be determined first when performing tests of details for
accounts receivable?
B) Accounts receivable in the aged trial balance agree with related master file amounts, and the
total is correctly added and agrees with the general ledger.
9) An auditor is performing a credit analysis of customers with balances over 60 days due. She is
most likely obtaining evidence for which audit related objective?
A) Realizable value
10) The most important test of details of balances to determine the existence of recorded
accounts receivable is:
D) the confirmation of customers' balances.
11) Because of its central role in auditing of accounts receivable, which of the following would
normally be one of the first items tested?
C) Aged trial balance
12) Confirmation of accounts receivable selected from the trial balance is the most common test
of details of balances for the ________ of accounts receivable.
C) accuracy.
13) Most tests of accounts receivable are based on what schedule, file, or listing?
B) Aged accounts receivable trial balance
14) If the client's internal control for recording sales returns and allowances is evaluated as
ineffective:
A) a larger sample may be needed to verify cutoff.
15) A customer mails and records a check to a client for payment of an unpaid account on
December 30. The client receives and records the amount on January 2. The records of the two
organizations will be different on December 31. This represents:
D)
A cutoff misstatement A timing difference
No Yes
16) Which of the following audit procedures would not likely detect a client's decision to pledge
or factor accounts receivable?
C) Confirmation of receivables
17) When do most companies record sales returns and allowances?
B) During the accounting period in which the return occurs
18) Cutoff misstatements can occur for:
A)
Sales Sales returns and allowances
Yes Yes
19) The most important aspect of evaluating the client's method of obtaining a reliable cutoff is
to:
B) evaluate the client's control procedures around cutoff.
20) Which of the following audit procedure would normally be included in the audit plan when
auditing the allowance for doubtful accounts?
B) Inquire of the client's credit manager.
21) Generally accepted accounting principles require that revenue be reported net of sales returns
and allowances:
C) if the amounts are material.
22) For which of the following accounts is cutoff least important?
C) Cash collections
23) Which of the following most likely would be detected by a review of a client's sales cutoff?
B) Unrecorded sales for the year
24) How might the auditor determine whether a client has limited rights to accounts receivable?
A)
Review minutes from board of directors
meetings Inquiries of the client
Yes Yes
25) You are reviewing sales to discover cutoff problems. If the client's policy is to record sales
when title to the merchandise passes to the buyer, then the books and records would contain
errors if the December 31 entries were for sales recorded:
A) before the merchandise was shipped.
26) A procedure to test for a cash receipts cutoff error is:
D) tracing recorded cash receipts to bank deposits on the bank statement of a different period.
27) If material, all of the following are required to be separately disclosed in the financial
statements except for:
D) sales for the last ten days of the fiscal year.
28) For effective internal control, employees maintaining the accounts receivable subsidiary
ledger should not also approve:
C) write-offs of customer accounts.
29) For most audits, a proper cash receipts cutoff is less important than the sales cutoff because
the improper cutoff of cash:
C) affects items on the balance sheet but does not affect net income.
30) One of the shortcomings in evaluating the allowance for uncollectible accounts by reviewing
individual noncurrent balances on the aged trial balance is:
C) both I and II
31) An auditor selects a sample from the file of shipping documents to determine whether
invoices were prepared. This test is to satisfy the audit objective of:
D) completeness.
32) When designing tests of details of balances, an important point to remember is:
B) the audit procedures selected depends heavily on whether planned evidence for a given
objective is low, medium, or high.
33) The net realizable value of accounts receivable is equal to:
A) gross accounts receivable less allowance for uncollectible accounts.
1) Which of the following is the principle "weakness" of using negative confirmations for your
tests of details of balances for accounts receivable?
C) Conclusions drawn from receiving no reply may not be correct.
2) Communication addressed to the debtor requesting him or her to confirm whether the balance
as stated on the communication is correct or incorrect is a:
D) positive confirmation.
3) A type of positive confirmation known as a blank confirmation:
A) requests the recipient to fill in the amount of the balance.
4) The most effective audit evidence gathered for accounts receivable is the:
C) confirmation of accounts receivable.
5) The audit procedure that provides the auditor with the most appropriate evidence when
performing test of details of balances for accounts receivable is:
A) confirmations.
6) When should auditors not perform alternative procedures in testing the accounts receivable
balance?
B) When customers do not return negative confirmation requests
7) A positive confirmation is more reliable evidence than a negative confirmation because:
D) follow-up procedures are performed if a response is not received from the debtor.
8) When positive confirmations are used, auditing standards require alternative procedures for
confirmations not returned by the customer. Which of the following would not be considered an
alternative procedure?
A) Send a second confirmation request.
9) The positive (as opposed to the negative) form of receivables confirmation may be preferred
when:
B) there is reason to believe that a substantial number of accounts may be in dispute.
10) An auditor should perform alternative procedures to substantiate the existence of accounts
receivable when:
A) no reply to a positive confirmation request is received.
11) Confirmation of accounts receivable balances normally provides evidence concerning the:
C) existence of the balances.
12) If the auditor decides not to confirm accounts receivable, the auditor should:
C) document the reasons for such a decision in the audit files.
13) The most reliable evidence from confirmations is obtained when they are sent:
A) as close to the balance sheet date as possible.
14) A type of positive confirmation in which an individual invoice is confirmed, rather than the
customer's entire accounts receivable balance is the ________ confirmation.
A) invoice
CHAPTER 17
1) Both sampling and nonsampling risks are associated with:
A)
Tests of controls. Substantive tests of transactions.
Yes Yes

2) Tests for rates of occurrence are appropriately used in all but which of the following
situations?
C)
Testing of internal Substantive testing of Substantive testing of
controls transactions details of balances
Yes Yes No
1) When selecting a sample size for substantive tests of balances which factor, other factors
being equal, would result in a larger sample?
A) A decrease in the tolerable misstatement
2) The auditors principal objective when using a sample of tests of details of balances is whether
the:
A) account balance being audited is fairly stated.
3) What is the purpose of applying stratified sampling to a population?
D)
To avoid items that may To emphasize certain items
contain misstatements and deemphasize others
No Yes
4) If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of
incorrect acceptance:
A) is reduced.
5) In estimating the population misstatement, the first step in projecting from the sample to the
population is to:
A) make a point estimate.
6) Tolerable misstatement is used to:
D)
Determine sample size Select the sample. Evaluate results.
Yes No Yes

7) The word below that best explains the relationship between required sample size and the
acceptable risk of incorrect acceptance is:
A) inverse.
8) The final step in the evaluation of the audit results is the decision to:
A) accept the population as fairly stated or to require further action.
9) Which of the following does not have to be considered in determining the initial sample size
of a test of details?
B) Acceptable risk of incorrect rejection
10) If an auditor concludes that internal controls are likely to be effective, the preliminary
assessment of control risk can be reduced, leading to which of the following impacts on the
acceptable risk of incorrect acceptance?
B) The acceptable risk of incorrect acceptance will be increased.
11) If acceptable audit risk is increased, acceptable risk of incorrect acceptance should be:
A) increased.
13) One of the steps involved in planning the sample for the tests of details of balances is to:
C) define a misstatement.
14) The risk the auditor is willing to take of accepting a balance as correct when the true
misstatement in the balance under audit is greater than the tolerable misstatement is:
C) the acceptable risk of incorrect acceptance.
15) As the amount of misstatements expected in the population approaches tolerable
misstatement, the planned sample size will:
B) increase.
16) An auditor using nonstatistical sampling cannot formally measure sampling error and
therefore must subjectively consider the possibility that the true population misstatement exceeds
a tolerable amount. Which of the following factors should be considered by the auditor in
making this assessment?
A)
The dollar difference between the The extent to which items in the
point estimate and tolerable population have been audited 100
misstatement. percent.
Yes Yes
17) The appropriate assumption to make regarding the overall percent of error in those
population items containing an error is:
C) based on the auditor's personal judgment in the circumstances.
18) When errors are found in a sample, auditors in practice generally make the assumption:
D) that the actual sample errors are representative of the population errors.
19) Which of the following needs to be considered when the auditor generalizes from the sample
to the population?
A)
Acceptable risk of incorrect
acceptance Sampling error
Yes Yes
20) The client's trial balance has a balance of $410,000 for merchandise inventory. As the auditor
you are willing to accept a balance that is within $20,000 of either side of the recorded balance.
You compute a 95% confidence interval of $395,000 to $425,000. You could therefore:
B) accept the trial balance amount.
21) While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was not materially
misstated. It was, in fact, materially misstated. This situation illustrates the risk of:
B) incorrect acceptance.
22) While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was materially
misstated. Which of the following is the least likely auditor reaction to this discovery?
B) Increase detection risk in the relevant areas.
23) When selecting a stratified sample, the sample size is:
B) determined for each stratum and selected from that stratum.
24) Factors considered by an auditor to determine the possibility that the true population
misstatement exceeds a tolerable amount in a nonstatistical sample include all of the following
except for:
B) the difference between the point estimate and acceptable control risk.
25) When defining the population and the sampling unit for tests of details of balances:
C) if sampling for completeness, the sampling unit will be customers with zero balances.
26) Which of the following is a correct statement?
C) A lower control risk risk requires a lower ARO in testing the controls.
27) If no exceptions were found in the substantive tests of transactions:
C) ARIA would increase.
28) If analytical procedures are performed with no indications of likely misstatements, ARIA
will ________ and the sample size will ________.
C) increase, decrease
29) Which of the following conditions would lead to a larger sample size?
C) High control risk
30) The AICPA audit sampling formula for computing nonstatistical tests of details of balances
sample size is to multiply the population recorded amount by the ________ and then divide by
the ________.
B) confidence factor, tolerable misstatement
31) If the population is not considered acceptable, one step the auditor is likely to take is to:
B) ask the client to adjust the account balance.
1) In monetary unit sampling, a sampling interval of 900 means that:
B) every 900th dollar in the account will be sampled.
2) Monetary unit sampling is not particularly effective at detecting:
B) understatements.
3) The auditor must consider the possibility that the true population misstatement is greater than
the amount of misstatement that is tolerable when the auditor is performing:
D)
Nonstatistical sampling. Monetary unit sampling.
No Yes
4) The most commonly used method of statistical sampling for tests of details of balances is:
D) monetary unit sampling.
5) When using monetary unit sampling, the recorded dollar population is a definition of all the
items in the:
A) population.
6) When the sample selection is done using probability proportional to size sample selection
(PPS):
C) population items with a zero recorded balance have no chance of being selected.
10) Which balance-related audit objective cannot be assessed using monetary unit sampling?
B) Completeness
11) PPS samples can be obtained in an efficient manner using all but which of the following?
A) Hand selection by the auditor
12) Which of the following item(s) are needed to determine the sample size using MUS?
C)
Recorded population
A point estimate for misstatements. value A confidence factor
 No Yes Yes
13) An estimate of the largest likely overstatement in a population at a given ARIA, using
monetary unit sampling is the:
D) misstatement bounds.
14) When using monetary unit sampling, evaluating the likelihood of unrecorded items in the
population is:
B) impossible.
15) The statistical methods used to evaluate monetary unit samples:
B) may permit the inclusion of a unit in the sample more than once.
16) Which of the following is not a problem with monetary unit selection?
B) Population items that should have a zero balance but do not
17) The allowance for sampling risk when no misstatements are found in the sample is:
B) basic precision.
18) Which of the following is not a disadvantage of monetary unit sampling?
B) The total misstatement bounds resulting when misstatements are found may be too low to be
useful to the auditor.
19) Calculating the sample size using monetary unit sampling depends on which of the following
factors?
A)
Estimated population misstatement Recorded population value
Yes Yes
21) Why do auditors find MUS appealing?
B) MUS is easy to use in the audit environment.
22) In monetary unit sampling, the relationship between tolerable misstatement size and required
sample size is:
B) inverse.
1) You are auditing Nelson and Company and determined that the sample results support a
conclusion that the account is materially misstated, when in fact it was not misstated. This
illustrates the risk of:
B) incorrect rejection.
2) The method used to measure the estimated total error amount in a population when there is
both a recorded value and an audited value for each item in the sample is:
A) difference estimation.
3) The auditor is concerned with the audited value rather than the error amount of each item in
the sample when using:
B) mean-per-unit estimation.
4) Acceptable risk of incorrect rejection affects auditors' action only when they conclude that a
population is:
C) not fairly stated.
5) If the auditor believes that there will be more than just a few exceptions discovered, and
desires an accurate estimate of the dollar value of the exceptions, he or she will use:
D) variables sampling.
6) The risk of incorrect rejection is important only when there is a ________ cost to increasing
the sample size.
A) high
7) Stratified sampling is applicable to difference, mean-per-unit, and ratio estimation, but it is
most commonly used with:
D) mean-per-unit estimation.
8) Which of the following sampling plans would be designed to estimate a numerical
measurement of a population, such as a dollar value?
D) Variable sampling
9) When dealing with variables sampling and sampling risk, it is important to understand that:
C) ARIA is a one-tailed statistical test.
10) When working with the different variables methods:
C) the difference between the mean-per-unit estimate and the difference estimate is the definition
of what is being measured.
11) Which of the following is not a type of statistical method that provides results in dollar
terms?
B) Attributes sampling
12) The confidence limits in variables sampling are similar to the_________ in monetary-unit
sampling.
B) misstatement bounds
13) When making statistical inferences, the auditor must remember that:
B) auditors can state the conclusions drawn from a confidence interval in different ways.
1) An important statistic to consider when using a statistical sampling audit plan is the
population variability. The population variability is measured by the:
B) standard deviation.

CHAPTER 18

1) The overall objective in the audit of the acquisition and payment cycle is:
C) To evaluate whether the affected accounts are fairly presented in accordance with accounting
standards.
2) Which of the following accounts is not part of the acquisition and payment cycle?
C) Sales returns and allowances
1) What typically initiates the acquisitions and payment cycle?
A) Issuance of a purchase requisition or request for purchase of goods/services
2) What typically ends the acquisitions and payment cycle?
B) Issuance of a payment on accounts payable
3) Which of the following accounts is not included in the acquisitions class of transactions?
C) Purchase discounts
4) A document indicating a reduction in the amount owed to a vendor because of returned goods
is:
A) A debit memo.
5) A document used by organizations to establish a formal means of recording and controlling
acquisitions which usually contains a package of documents about the acquisition is the:
A) Voucher.
6) The computer-generated file which records acquisitions, disbursements and allowances for
each vendor is the:
A) Accounts payable master file.
7) Which of the following business functions is not considered to be part of the acquisitions class
of transactions?
D) Processing cash disbursements
8) Smaller privately held companies may not maintain an accounts payable master file by
vendor. These companies pay on the basis of:
B) Individual vendors' invoices.
9) After a purchase requisition is approved, a ________ must be initiated to purchase the goods
or services.
A) Purchase order
10) A document generally received from the vendor which indicates a reduction in the amount
owed due to the company granting an allowance is a:
B) Debit memo.
11) Absent disputed amounts and minor timing differences, the vendor's statements should
reconcile to the:
B) Accounts payable master file.
1) You have been assigned to the accounts payable transaction cycle as part of your auditing
responsibilities. You have decided to vouch a sample of entries in the accounts payable master
file to supporting documents. Which assertion is this test of controls most likely to support?
D) Occurrence
2) An auditor is gathering evidence on the completeness assertion. To do so she performs a test
to verify that all goods received by the company have been recorded properly. The document
population for this test would consist of all:
C) Receiving reports.
3) Which of the following is not an accurate statement regarding the acquisition and payment
cycle?
D) The accounting department should be responsible for receiving goods and preparing the
receiving report.
4) When reviewing the controls and procedures in the acquisition and payment cycle:
C) Personnel who record the acquisitions should not have access to cash or other assets.
5) A written purchase order is a contractual document that is:
A) An offer to buy goods or services.
6) Which one of the following duties should not be assigned the purchases department?
D) Authorizing the acquisition of goods
7) The accounts payable department usually has responsibility for approving acquisitions for
payment by comparing the details on the:
C) purchase order, receiving report, and vendor's invoice.
8) A substantive tests of transactions for acquisitions that would be used to provide evidence
regarding the occurrence assertion would be to:
C) Review the acquisitions journal for large or unusual amounts.
9) When testing the controls for the completeness transaction-related audit objectives:
D) The audit time for accounts payable can be reduced if the client has effective internal controls
and the auditor properly tests those controls.
10) Which of the following is not a key control in the acquisition and payment cycle?
B) Authorization of credit
11) A key internal control over the acquisition cycle is to ensure that the company requires
recording transactions as soon as possible after the goods and services have been received. This
satisfies the transaction-related audit objective of:
C) Timing.
12) When a client uses perpetual inventory records, the tests of details of balances for inventory
can be significantly reduced if the auditor believes the records are accurate. The
B) Tests of controls and substantive tests of transactions for acquisitions.
13) The auditor's internal control objective to determine that "recorded acquisitions are for goods
and services received" satisfies the audit objective of:
B) Occurrence.
14) Failure to record the acquisition of goods is a violation of which audit objective?
D) Completeness
15) The internal control that requires that "checks are prenumbered and accounted for" satisfies
the objective of:
C) Completeness.
16) Because of the importance of tests of controls and substantive tests of transactions for
acquisitions and cash disbursements, it is common in this audit area to use:
C) attributes sampling.
17) Which of the following tests of controls is least useful in assessing the transaction-related
audit objective related to occurrence?
C) Account for sequence of vouchers.
18) You are performing the audit of Jenkins and Company. Your tests of controls and tests of
transactions for accounts payable demonstrate that the controls are operating effectively. This
would normally allow you to:
B) Reduce the need for substantive testing of balances for accounts payable.
19) An auditor is using audit sampling to test transactions in the acquisition and payment cycle.
She would normally set the tolerable exception rate at what level?
A) Low
20) Which of the following is the most effective control procedure to detect vouchers that were
prepared for the payment of goods that were not received?
B) Match purchase order, receiving report, and vendor's invoice for each voucher in accounts
payable department.
21) Which of the following should sign checks under conditions of effective internal control?
A) Treasurer
22) Internal controls that are likely to prevent the client from including as a business expense
those transactions that primarily benefit management or other employees rather than the entity
being audited satisfy the control objective that:
D) Recorded acquisitions are for goods and services received.
23) The test of transactions which requires one to "reconcile recorded cash disbursements with
the cash disbursements on the bank statement" satisfies the objective of:
B) Completeness.
24) For effective internal control purposes, the vouchers payable department generally should:
C) Establish the agreement of the vendor's invoice with the receiving report and purchase order.
25) 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:
B) Vendors' invoices.
26) Matching the supplier's invoice, the purchase order, and the receiving report prior to
preparing the voucher would normally be the responsibility of the:
B) Purchasing function.
27) 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. A control procedure that should
have prevented this duplicate payment is:
A) Attachment of the receiving report to the disbursement report.
28) 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:
C) Received, counted, and checked to quantities and amounts on purchase orders and invoices.
29) Authorization for accepting goods in the receiving department should be based on the:
C) Purchase order from the purchasing department.
1) Auditors need to distinguish between accounts payable and accrued liabilities in designing the
appropriate control and substantive tests. A liability is properly accounted for as an account
payable if:
A) The amount is known and owed as of the balance sheet date.
2) When determining the methodology for designing tests of details of balances for accounts payable:
A) supply-chain management activities has led to numerous changes in the design of systems
used to initiate and record acquisition and payment activities.
3) Auditors are especially concerned about the ________ and ________ balance-related audit
objectives because of the potential for understatements in the account balance.
A) Completeness, cutoff
1) The overall objective in the audit of accounts payable is to determine whether accounts
payable:
A) Is fairly stated and properly disclosed.
2) ________ is a balance-related audit objective that is not applicable to liabilities.
D) Realizable value
1) At what point do most companies recognize liabilities in the acquisition and payment cycle
when the goods are shipped FOB destination?
C) When the goods or services are received
2) Cutoff procedures for inventory purchased should be designed by companies to assure the
company that:
C) Inventory received before year end was recorded before year end.
3) You are the in-charge auditor and are designing audit procedures for accounts payable. Which
of the following management assertions would you normally be most concerned about?
C) Completeness
4) The main focus taken by the auditor in verifying liability balances is on the discovery of:
C) Both I and II
5) By tracing receiving reports issued at and before year-end to vendors' invoices and making
sure they are included in accounts payable, the auditor is testing for:
B) unrecorded obligations.
6) The extent of a search for unrecorded liabilities largely depends on:
B) Materiality and control risk.
7) A document review of which of the following is most likely to yield evidence of any
unrecorded liabilities?
C) Unpaid accounts payable
8) When the client's physical inventory occurs before the last day of the year, it is still necessary
to perform an accounts payable cutoff at the time of the count. In addition, the auditor must
verify whether all acquisitions taking place between the count and the end of the year were added
to:
D) The physical inventory and accounts payable.
9) Peprah Company pays its accounts payable 45 days after receipt of the goods or services. In
this case which audit procedure should be used to detect any unrecorded liabilities?
A) Examine cash disbursements for several weeks after the balance sheet date.
10) Cutoff information for inventory acquisitions should be obtained during:
C) The physical observation of inventory.
11) The auditor has decided to use accounts payables confirmations when testing substantive
testing for balances. Which two management assertions is she testing?
A) Existence and completeness
12) In searching for unrecorded liabilities the purpose of the audit procedure to "examine
underlying documentation for subsequent cash disbursements" is to:
C) Uncover payments made in a subsequent accounting period for liabilities that existed at the
balance sheet date.
13) To test for cutoff errors which overstate liabilities, the auditor should trace, to vendors'
invoices, the receiving reports issued:
A) After year-end.
14) In determining that the accounts payable cutoff is correct, it is essential that the cutoff tests
be coordinated with the:
C) Observation of inventory.
15) An inventory acquisition is received late in the afternoon of December 31 after the physical
inventory is completed. If the acquisition is included in accounts payable and purchases, but
excluded from inventory, the result:
A) Is an understatement of net earnings.
16) When an acquisition is on an FOB origin basis, the inventory and related accounts payable
must be recorded in the current period if the goods were:
B) Shipped on or before the balance sheet date.
17) When assets are being verified, auditors focus much of their attention on making sure that
the accounts are not overstated. Alternatively, auditors focus their efforts on understatement
when auditing liabilities. What is the primary reason for this difference in focus?
A) Auditors' legal liability
18) A company recorded an acquisition of merchandise and its related liability, but failed to
include the merchandise in ending inventory. The effect on the financial statements was to:
B) Understate net income.
1) The documents typically used to reconcile the balance on the accounts payable list with the
confirmation or vendor's statements include all of the following except for:
C) Sales invoices.
2) Which of the following is most reliable for verifying the correct balance of accounts payable?
C) Confirmations
3) Vendors' statements and vendors' invoices are both relatively reliable evidence because they:
B) Originate from a third party.
4) The auditor is performing tests of transactions for individual accounts payable transactions
with vendors. Which document provides more reliable information about individual transactions
with vendors?
B) Vendors' invoices
5) Auditor confirmation of accounts payable balances at the balance sheet date may not need to
be performed by the auditor because:
B) There is likely to be other reliable external evidence available to support the balances.
6) Under which of the following circumstances would it be advisable for the auditor to confirm
accounts payable with creditors?
C) Creditor statements are not available and internal control over payables is unsatisfactory.
7) The auditor is performing substantive tests of balances for accounts payable. What
documentation would provide the best evidence for the ending balance?
B) Vendors' statements
8) The auditor gets highly reliable evidence about individual transactions by examining:
A) Vendors' invoices.
9) Which of the following documents is best for verifying the correct balance in accounts
payable?
D) Vendors' statements
10) When auditors examine vendors' statements or receive confirmations, there must be a
reconciliation of the statement or confirmation with the:
A) Accounts payable list.
11) You are performing an audit of Hawk Company. In evaluating the accounts payable balance
you are concerned with the completeness assertion. Which of the following audit procedures best
satisfy your concern?
B) Send confirmations to vendors with large, active, zero balance accounts and a representative
sample of all others.