CH 12: auditing the purchasing process

Question 1

What are the 5 steps in the process of auditing purchases

Answer 1

1: initial audit planning
2: understand internal controls and determine preliminary audit strategy
3: test controls based on preliminary audit strategy
4: determine and perform substantive procedures and evaluate results
5: draw conclusion about fair presentation

Question 2

an entity’s purchasing process consists of activities related to the ___________

Answer 2

acquisitions and payments for goods and services

Question 3

what are normally the three classes of transaction in the purchasing process

Answer 3

1. purchasing goods and services (on credit)
2. making payments (cash disbursement transactions)
3. recording purchase adjustments

Question 4

what are the largest of the transaction classes int he purchasing process

Answer 4

credit purchases and cash disbursements

Question 5

purchases and accounts payable transactions should be recorded upon the ______

Answer 5

receipt of goods

Question 6

when are purchase discounts recorded?

Answer 6

when recording the cash disbursement

Question 7

the auditor should obtain ______________ for each assertion related to the purchasing process

Answer 7

sufficient appropriate evidence

Question 8

for companies that purchase goods on account, the transaction should record ________ and __________ upon the receipt of the goods

Answer 8

purchases and accounts payable

Question 9

upon payment of a liability ____________ and ________ is reduced

Answer 9

accounts payable; cash

Question 10

if cash disbursements are understated, accounts payable with be ____________

Answer 10

overstated

Question 11

what are the relevant assertions to the transaction classes and related discloses of: purchases of material or goods, various expenses, and disclosures related to purchase transaction

Answer 11

• occurence
• completeness
• accuracy
• cutoff
• classification
• presentation

Question 12

what are the relevant assertions to the account balance an related disclosures such as: accounts payable, various purchased assets, disclosures related to accounts payable

Answer 12

• existence
• rights and obligations
• completeness
• accuracy, valuation and allocation
• classification
• presentation

Question 13

what is the primary relevant assertion in the initial procedures regarding Accounts Payable account balance

Answer 13

valuation

Question 14

what are the initial procedures (4) for the AP account balances- valuation

Answer 14

1. agree beginning balance to prior year working paper
2. obtain accounts payable trial balance
3. scan for unusual transactions on the TB
4. agree sub ledger to general ledger

Question 15

the rights and obligations assertion with respect to accounts payable relates to whether accounts payable __________________

Answer 15

reflect the recorded liability of the entity

Question 16

substantive analytical procedures verify ______________

Answer 16

the auditor’s expectations of relationships such as AP to purchases

Question 17

what are the relevant assertion(s) related to vouching recorded payable to supporting documentation (test of details purchasing transaction)

Answer 17

occurrence, accuracy, cutoff, classification

Question 18

what is vouching?

Answer 18

source documents to accounting records

Question 19

what are the relevant assertion(s) related to trace purchases received (part of test of details of purchasing transactions)

Answer 19

completeness

Question 20

when performing cutoff tests (inspect) for purchases the auditors are verifying ________________

Answer 20

that purchases/ payable are recorded in the proper time period

Question 21

what are the relevant assertion(s) for performing a search for unrecorded liabilities (under the test of details of transactions)

Answer 21

completeness, cutoff

Question 22

performing a search for unrecorded liabilities is designed to ______________

Answer 22

detect significant unrecorded liabilities at the balance sheet date

Question 23

test of details confirms

Answer 23

accounts payable

Question 24

what are the relevant assertions for the test of details of account balances

Answer 24

-existence
- accuracy, valuation and allocation
- completeness

Question 25

what are the three documents in a three-way match of purchase documents

Answer 25

purchase order, receiving report and vendor invoice

Question 26

vouching is not applicable to which assertion

Answer 26

completeness

Question 27

what period does the purchase cutoff test typically cover

Answer 27

period or 5-10 business days before and after BS

Question 28

examining subsequent payments is a common procedure in

Answer 28

performing search for unrecorded liabilities

Question 29

what happens in examining subsequent payments

Answer 29

examining vouchers paid after the balance sheet date (or interim date) to determine if the payment is for an obligation that existed as of the balance sheet date (or an interim date) and whether the obligation was in fact recorded as of the balance sheet date (or interim date)

Question 30

when is the procedure of examining subsequent payments performed

Answer 30

towards the end of fieldwork

Question 31

what are the two tests in the test of details of balances

Answer 31

1. confirming accounts payable 2. reconciling unconfirmed payables to monthly statements received by the client from vendors

Question 32

there is no ________ made about the confirmation of accounts payable

Answer 32

presumption

Question 33

is the confirmation of accounts payable optional?

Answer 33

yes

Question 34

confirmation of AP is recommended when the DR is ______

Answer 34

low

Question 35

who must control the preparation and mailing of each confirmation

Answer 35

auditors

Question 36

when auditors choose to send AP confirmations those accounts with ______ or _____ balance should be among the ones selected as they may be more understated

Answer 36

zero; small

Question 37

the evidence provided for the completeness assertions by the confirmations of AP is _____

Answer 37

limited

Question 38

what assertions is of primary importance to the auditor in auditing AP

Answer 38

completeness

Question 39

in a search for unrecorded liabilities the auditor examines ________

Answer 39

subsequent payments between balance sheet date and end of fieldwork, and when related documentation indicates payment was for an obligation in existence at balance sheet date; trace to accounts payable listing