Question 1

For companies that purchase goods on account, the transaction should _______.

Accepted Answer

A)  record purchases and accounts payable upon ordering of the goods
B)  record purchases and accounts payable upon the receipt of goods
C)  be input into the ledger by the auditor once it has been reviewed
D)  overstate equity until the goods are paid forE) B) and C)
F) A) and C)

Question 2

Many audit clients build in _______ controls so if one control does not find a misstatement, another control is designed to surface the problem.

Accepted Answer

Redundant ...

Question 3

When an auditor updates his or her understanding of the entity and its environment, _______.

Accepted Answer

A)  each audit should be viewed identically to previous audits
B)  each audit should be viewed independently from previous audits
C)  each audit should be viewed with respect to the current audit of other clients
D)  the auditor should be sure that senior management agrees with the auditor's understanding, and modify appropriately if notE) A) and C)
F) A) and B)

Question 4

Procurement fraud risks include _______.

Accepted Answer

A)  phantom vendors
B)  fictitious invoices
C)  kickbacks and bid rigging
D)  All of these answer choices are correct.E) B) and D)
F) All of the above

Question 5

The cash disbursements process involves the following sub-processes: _______.

Accepted Answer

A)  approving cash receipts and recording cash disbursements.
B)  approving cash disbursements and recording cash disbursements.
C)  approving cash receipts and recording cash receipts.
D)  approving payables disbursements and recording cash disbursements.E) A) and B)
F) A) and C)

Question 6

Goods shipped FOB (free on board)  shipping point should be _______.

Accepted Answer

A)  included in inventory by both the buyer and seller upon shipment
B)  included in the inventory and accounts payable of the selling entity upon shipment
C)  included in the inventory and accounts payable of the purchasing entity upon shipment
D)  excluded by both the buyer and seller upon shipmentE) None of the above
F) C) and D)

Question 7

Management and the auditor have to be alert to the risk of collusion with _______.

Accepted Answer

A)  vendors and vendor kickbacks to employees
B)  customers and vendor kickbacks to employees
C)  customers and customer kickbacks to employees
D)  vendors and vendor kickbacks to stockholdersE) B) and D)
F) A) and C)

Question 8

The master vendor file should be reviewed _______.

Accepted Answer

A)  on a regular basis to remove old vendors or potential duplicate vendors
B)  every five years to remove old vendors or potential duplicate vendors
C)  on a regular basis to remove new vendors or potential duplicate vendors
D)  every five years to remove new vendors or potential duplicate vendorsE) None of the above
F) B) and D)

Question 9

All of the following are tests of presentation and disclosure for auditing the payroll process, EXCEPT _______.

Accepted Answer

A)  reviewing presentation and disclosure for payroll costs in drafts of financial statements
B)  evaluating the completeness of presentation and disclosure for receivables in drafts of financial statements
C)  reading disclosures and independently evaluate their understandability
D)  verifying accrued payroll was reported and in the drafts of the financial statementsE) None of the above
F) A) and C)

Question 10

Purchase returns and allowances involve _______.

Accepted Answer

A)  reducing payables and expenses, improving reported liquidity and earnings
B)  increasing payables and expenses, improving reported liquidity and earnings
C)  reducing payables and expenses, decreasing reported liquidity and earnings
D)  increasing payables and expenses, decreasing reported liquidity and earningsE) All of the above
F) None of the above

Question 11

A risk related to what can go wrong with respect to authorizing purchases relates to _______.

Accepted Answer

A)  purchases being made from unauthorized vendors
B)  purchases being made from authorized vendors
C)  goods received that were not ordered
D)  foods ordered that have not been receivedE) All of the above
F) A) and B)

Question 12

Which of the following is a measure of productivity per employee?

Accepted Answer

A)  Revenue per employee
B)  Total payroll costs as a percent of revenue
C)  Comparing payroll expenses with prior year balances or budgets
D)  Average payroll cost per employee classificationE) A) and B)
F) All of the above

Question 13

Suppose an auditor is preparing for an audit of the payroll process of an entity and has identified that the entity is labor-intensive and depends largely on hourly compensation.The auditor still needs to understand all of the following about the entity, EXCEPT _______.

Accepted Answer

A)  The capital intensiveness of the entity
B)  The importance of bonuses or other compensation arrangements
C)  The level of variability of pay throughout the period
D)  None of the answer choices are correct.E) C) and D)
F) B) and D)

Question 14

All of the following transactions would be considered part of the payroll process, EXCEPT _______.

Accepted Answer

A)  payment of payroll taxes
B)  payment of commissions
C)  payment of incentives
D)  payment of hourly wagesE) B) and D)
F) A) and D)

Question 15

The transaction flow in a typical purchasing process for a client purchasing goods includes _______.

Accepted Answer

A)  approving purchases, shipping goods, and recording purchases and accounts payable
B)  approving purchases, receiving goods, and recording purchases and accounts payable
C)  approving purchases, receiving goods, and recording purchases and accounts receivable
D)  approving sales, receiving goods, and recording purchases and accounts receivableE) All of the above
F) B) and C)

Question 16

The use of audit data analytics as a substantive test in auditing the payroll process depends on which of the following?

Accepted Answer

A)  The substance of the client's data
B)  The quantity of the client's data
C)  The quality of the client's data
D)  The nature of the client's dataE) All of the above
F) A) and B)

Question 17

The cash disbursements process involves which two following sub-processes?

Accepted Answer

A)  approving cash disbursements and recording cash disbursements.
B)  approving cash receipts and recording cash disbursements.
C)  approving cash disbursements and recording cash receipts.
D)  approving cash receipts and recording cash receipts.E) A) and C)
F) C) and D)

Question 18

Which of the following may be a risk when internal controls are poor over recording payables and cash disbursements?

Accepted Answer

A)  Duplicate payments
B)  Financial payments
C)  Fictitious invoices
D)  Phantom vendorsE) A) and C)
F) A) and B)

Question 19

The purchases cutoff test involves determining that _______.

Accepted Answer

A)  purchase transactions occurring near the balance sheet date are recorded in the proper period
B)  sales transactions occurring near the balance sheet date are recorded in the proper period
C)  purchase transactions occurring near the balance sheet date are recorded at the correct amounts
D)  sales and purchasing transactions occurring after the balance sheet date are recorded at the correct amountsE) A) and B)
F) B) and C)

Question 20

Key assertions related to cash disbursements are _______.

Accepted Answer

A)  completeness, occurrence, accuracy, and cutoff
B)  verifiability, occurrence, accuracy, and cutoff
C)  going concern, occurrence, accuracy, and cutoff
D)  completeness, occurrence, accuracy, and comparabilityE) A) and B)
F) A) and C)

Exam 12: Auditing the Purchases Cycle and Payroll Cycle

Goods shipped FOB (free on board) shipping point should be _______.

Correct AnswerverifiedShow Answer

Many audit clients build in _______ controls so if one control does not find a misstatement, another control is designed to surface the problem.

Correct AnswerverifiedRedundant ...View AnswerShow Answer

Management and the auditor have to be alert to the risk of collusion with _______.

Correct AnswerverifiedShow Answer

The cash disbursements process involves which two following sub-processes?

Correct AnswerverifiedShow Answer

Which of the following may be a risk when internal controls are poor over recording payables and cash disbursements?

Correct AnswerverifiedShow Answer

For companies that purchase goods on account, the transaction should _______.

Correct AnswerverifiedShow Answer

A risk related to what can go wrong with respect to authorizing purchases relates to _______.

Correct AnswerverifiedShow Answer

Which of the following is a measure of productivity per employee?

Correct AnswerverifiedShow Answer

The transaction flow in a typical purchasing process for a client purchasing goods includes _______.

Correct AnswerverifiedShow Answer

The master vendor file should be reviewed _______.

Correct AnswerverifiedShow Answer

All of the following are tests of presentation and disclosure for auditing the payroll process, EXCEPT _______.

Correct AnswerverifiedShow Answer

The cash disbursements process involves the following sub-processes: _______.

Correct AnswerverifiedShow Answer

When an auditor updates his or her understanding of the entity and its environment, _______.

Correct AnswerverifiedShow Answer

Key assertions related to cash disbursements are _______.

Correct AnswerverifiedShow Answer

The use of audit data analytics as a substantive test in auditing the payroll process depends on which of the following?

Correct AnswerverifiedShow Answer

The purchases cutoff test involves determining that _______.

Correct AnswerverifiedShow Answer

Suppose an auditor is preparing for an audit of the payroll process of an entity and has identified that the entity is labor-intensive and depends largely on hourly compensation.The auditor still needs to understand all of the following about the entity, EXCEPT _______.

Correct AnswerverifiedShow Answer

Procurement fraud risks include _______.

Correct AnswerverifiedShow Answer

Purchase returns and allowances involve _______.

Correct AnswerverifiedShow Answer

All of the following transactions would be considered part of the payroll process, EXCEPT _______.

Correct AnswerverifiedShow Answer

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