Modern Auditing Boynton

a. 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?
(1) Footing the purchases journal.
(2) Reconciling vendors monthly statements with subsidiary payable ledger accounts.
(3) Tracing totals from the purchases journal to the ledger accounts.
(4) Sending written quarterly confirmations to all vendors.
b. Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store.
Budd arranged for hardware to be delivered by manufacturers to the relatives retail store on a COD basis,
thereby enabling his relative to buy at Lakes wholesale prices. Budd was probably able to accomplish this
because of Lakes poor internal control over
(1) purchase requisitions.
(3) cash receipts.
(2) purchase orders.
(4) perpetual inventory records.
c. Which of the following is an internal control that will prevent paid cash disbursement documents from being
presented for payment a second time?
(1) The date on cash disbursement documents must be within a few days of the date that the document is presented
for payment.
(2) The official signing the check compares the check with the documents and should deface the documents.
(3) Unsigned checks are prepared by individuals who are responsible for signing checks.
(4) Cash disbursement documents are approved by at least two responsible management officials.
d. Which of the following questions would be best to include in an internal control questionnaire concerning the
completeness assertion for purchases?
(1) Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers
payable department can record a voucher?
(2) Are purchase requisitions prenumbered and independently matched with vendor invoices?
(3) Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have
access to purchase requisitions?
(4) Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?
e. In auditing accounts payable, an auditors procedures most likely will focus primarily on managements
assertion of
(1) existence.
(3) completeness.
(2) realizable value.
(4) valuation and allocation.
f. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
(1) Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
(2) Reconciling vendors statements to the file of receiving reports to identify items received just prior to the balance
sheet date.
(3) Reviewing cash disbursements recorded subsequent to the balance sheet date to deter mine whether the related
payables apply to the prior period.
(4) Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether
they are supported by receiving reports.
g. An auditor traced a sample of purchase orders and the related receiving reports to the acquisitions journal and
cash disbursements journal. The purpose of this substantive test of transactions most likely was to
(1) identify unusually large purchases that should be investigated further.
(2) verify that cash disbursements were for goods actually received.
(3) determine that purchases were properly recorded.
(4) test whether payments were for goods actually ordered.
h. For effective internal control, the accounts payable department generally should
(1) stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
(2) ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.
(3) omit information about the quantity ordered on the copy of the purchase order forwarded to the receiving
department prior to receipt of goods.
(4) establish the agreement of the vendors invoice with the receiving report and purchase order.
i. When using confirmations to provide evidence about the completeness assertion for accounts payable, the
appropriate population most likely is
(1) vendors with whom the entity has previously done business.
(2) amounts recorded in the accounts payable subsidiary ledger.
(3) payees of checks drawn in the month after year-end.
(4) invoices filed in the entitys open invoice file.
Essay
1. Explain why it is common for auditors to send confirmation requests to vendors with zero balances on the
clients accounts payable listing but uncommon to follow the same approach in verifying accounts receivable.
Answer
1. Unless evidence is discovered which indicates that a different approach should be followed, auditors
traditionally follow a conservative approach in selecting vendors for accounts payable confirmations and
customers for accounts receivable confirmations. The auditor assumes that the client is more likely to understate
accounts payable, and therefore concentrates on the vendors with whom the client deals actively, especially if
that vendor's balance appears to be lower than normal on the client's accounts payable listing at the confirmation
date. In verifying accounts receivable, the auditor assumes that the client is more likely to overstate account
balances; and for that reason concentrates more on the larger dollar balances and is not as concerned with "zero
balances."

Modern Auditing Boynton

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a. A client erroneously recorded a large purchase twice.

Which of the following internal controls would be most

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