Study Unit 7: questions Flashcards
In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also
Is responsible for mailing the checks.
Who is responsible for approving vendors’ invoices for payment?
The accounts payable department is responsible for compiling documentation to support an account payable. This approval process is performed in the accounting department.
What are the procedures performed for the CFO?
Verifying the accuracy of checks and vouchers.
Canceling payment vouchers when paid.
Controlling the mailing of checks to vendors.
What is one way to make sure an invoice does not get paid twice?
The check signer reviews and cancels the voucher packets.
A control should be implemented to prevent an invoice from being paid twice. This can be accomplished by canceling the voucher and supporting documents.
Checks should be sequentially numbered and the numerical sequence should be accounted for by:
by the person preparing bank reconciliations.
The sequential numbering of checks provides a standard control over cash disbursements. The numerical sequence of canceled checks should be accounted for by the person preparing bank reconciliations. Physical control over blank checks should be maintained by the CFO. A major objective is to detect unrecorded and unauthorized checks.
What is the AP department responsible for?
The accounts payable department is responsible for matching the vendor’s invoice against the corresponding purchase order and receiving report. This procedure provides assurance that a valid transaction has occurred and that the parties have agreed on the terms, such as price and quantity.
The authority to accept incoming goods in receiving should be based on a(n)
Approved purchase order.
A receiving department should accept merchandise only if a purchase order or approval granted by the purchasing department is on hand.
When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the
Debit memo.
A debit memo indicates a reduction in the amount owed to a vendor because goods have been returned. The debit memo authorizes the accounting department to debit the appropriate payable.
Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the
Receiving department.
A receiving department should accept merchandise only if a purchase order or approval granted by the purchasing department is on hand. A standard control is to delete the quantity from the receiving department’s copy of the purchase order. If the receiving clerk does not know the quantity ordered, an independent count is more likely.
Can an accounts payable manager issue POs?
No, to maintain a proper segregation of duties, the purchasing agent, not the accounts payable manager, should issue purchase orders. The accounts payable manager performs a recording function. (S)he should not be able to authorize transactions or have custody of assets.
When the auditor tests for unauthorized nonrecurring purchases, (s)he should vouch purchases to:
to the purchase requisitions. The initiating authorization by the user department is embodied in a properly authorized purchase requisition.
What is more effective: inventory count at the end of the year or at interim dates?
Counts at period end are more effective procedures than counts at interim dates.
The primary audit objective regarding the purchasing of materials by the client is to
Determine the reliability of financial reporting by the purchasing function.
The auditor should obtain an understanding of internal control. The purpose of internal control is to address business risks that threaten the achievement of the following entity objectives: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with laws and regulations (AU-C 315).
The auditor should obtain an understanding of internal control. The purpose of internal control is to address business risks that threaten the achievement of the following entity objectives:
(1) reliability of financial reporting,
(2) effectiveness and efficiency of operations, and
(3) compliance with laws and regulations
Who accounts for unused prenumbered POs?
he purchasing department accounts for unused prenumbered purchase orders. The receiving department accounts for unused prenumbered receiving reports.
To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should
Require competitive bidding.
The primary function of a purchasing department is to ensure the authorized acquisition of goods of a specified quality on a timely basis at an economical price. Competitive bidding procedures should reduce both costs and the likelihood that a purchasing agent will show favoritism to a vendor.
Under which of the following circumstances would an auditor be most likely to intensify an audit of a $500 imprest petty cash fund?
A. Reimbursement vouchers are not prenumbered.
B. The custodian occasionally uses the cash fund to cash employee checks.
C. The custodian endorses reimbursement checks.
D. Reimbursement occurs twice each week.
Reimbursement occurs twice each week.
If the auditor determines that reimbursement occurs twice each week, (s)he should intensify the audit of the imprest cash fund. The frequent need for reimbursement suggests that the fund is not functioning as planned.
The vouchers payable clerk:
(1) matches purchase orders, vendors’ invoices, and receiving reports;
(2) tests the calculations and terms on the vendors’ invoices; and
(3) prepares a disbursement voucher.
Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if partial payments to vendors are continuously made in the ordinary course of business. Why?
If a firm makes partial payments to vendors, tracking the amounts still due on vouchers may be difficult. An accounts payable subsidiary ledger provides a continuous record of amounts due to vendors.
What is MRP?
MRP (materials requirement planning) is a computer-based information system designed to plan and control materials used in production. It determines the quantity of finished goods that will be required and the point when they will be needed. The system requires prompt notice of changes in production schedules.
Before sending or receiving EDI messages, a company should execute a trading partner agreement with its customers and suppliers. For example, all parties should understand:
(1) their responsibilities,
(2) the messages each will initiate,
(3) how they will interpret messages,
(4) the means of authenticating and verifying the completeness and accuracy of messages,
(5) the moment when the contract between the parties is effective, and
(6) the required level of security.
In the initial phase of EDI implementation, what must be done?
understanding the organization’s mission and an analysis of its activities as part of an integrated solution to the organization’s needs.
True or False? EDI transactions are formatted using strict standards that have been agreed to worldwide.
True: Organizations such as the American National Standards Institute (ANSI) have defined virtually every type of business transaction in terms of their fields and information content. These are termed transmission sets. When a trading partner sends a transmission set, the receiving computer can expect to receive the specified information in a specified format.
What is a benefit of EDI in regards to year end receivables balances?
EDI transactions are typically transmitted and processed in real time. Thus, EDI compresses the business cycle by eliminating delays. The time required to receive and process an order, ship goods, and receive payment is greatly reduced compared with that of a typical manual system. Accordingly, more rapid receipt of payment minimizes receivables and improves cash flow.
