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Audit objectives, misstatements: disbursement payable cycle

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The following statements are typically found in a questionnaires used by auditors to obtain an understanding of internal control in the acquisition and payment cycle. In using the questionnaire for a client, a "yes" response to a question indicates a possible internal control, whereas a "no" indicates a potential deficiency.

a. For each of the questions, state the transaction-related audit objective(s) being fulfilled if the control is in effect.
b. For each internal control, list a test of control to test its effectiveness.
c. For each of the questions, identify the nature of the potential financial misstatement(s) if the control is not in effect.
d. For each of the potential misstatements in part c, list a substantive audit procedure that can be used to determine whether a material misstatement exists.

1. Is the purchasing function performed by personnel who are independent of the receiving and shipping functions and the payables and disbursing functions?
2. Are all vendors' invoices routed directly to accounting from the mailroom?
3. Are all receiving reports renumbered and the numerical sequence checked by a person independent of check preparation?
4. Are all extensions, footing, discounts, and freight terms on vendors' invoices checked for accuracy?
5. Does a responsible employee review and approve the invoice account distribution before the transaction is entered in the computer?
6. Are checks automatically posted in the cash disbursements journal as they are prepared?
7. AR3e all supporting documents properly cancelled at the time the checks are signed?
8. Is the custody of checks after signature and before mailing handled by an employee independent of all payable, disbursing, cash, and general ledger functions?

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1. Is the purchasing function performed by personnel who are independent of the receiving and shipping functions and the payables and disbursing functions?
a. Segregation of duties; Occurrence, completeness (expenses, payables)
b. Walk through of procedures
c. Purchases can be at the wrong price, recorded incorrectly, not accrued at year end or paid for when there was no real purchase
d. Make sure payments have receiving documents

2. Are all vendors' invoices routed directly to accounting from the mailroom?
a. Limiting access; Completeness
b. Walk through of procedures
c. Unauthorized person can hide the invoice or destroy to avoid accrual or submit in the wrong amount
d. Using audit software, check to see if the sequence of vendor checks is ...

Solution Summary

One or two ideas for each audit objective, internal controls and effectiveness, misstatements, and audit procedures.

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Similar Posting

Auditing the Expenditure Cycle - Multiple Choice

REQUIRED: Indicate the best answer choice for each of the following.

1.The expenditure cycle would include:
a. the purchase of another entity's stocks.
b. the purchase of treasury stock.
c. payroll transactions.
d. payments by check.
e. the purchase of another entity's bonds.

2.The specific audit objective that all purchases and cash disbursements made during the period were recorded relates to:
a. rights and obligations.
b. completeness.
c. existence or occurrence.
d. presentation and disclosure.
e. valuation or allocation.

3.The specific audit objective that the entity is liable for the payables resulting from the recorded purchase transactions relates to:
a. rights and obligations.
b. completeness.
c. existence or occurrence.
d. presentation and disclosure.
e. valuation or allocation.

4.The specific audit objective that all purchase transactions and cash disbursements are valued using GAAP and correctly journalized, summarized, and posted relates to:
a. rights and obligations.
b. completeness.
c. existence or occurrence.
d. presentation and disclosure.
e. valuation or allocation.

5.The specific audit objective that recorded purchases represent goods, services, and productive assets received during the period relates to:
a. rights and obligations.
b. completeness.
c. existence or occurrence.
d. presentation and disclosure.
e. valuation or allocation.

6.The specific objective accounts payable are legal obligations of the entity at the balance sheet date is derived from the:
a. existence or occurrence.
b. completeness.
c. rights and obligations.
d. presentation and disclosure.
e. valuation or allocation.

7.Recent trends in accounts payable include all of the following except:
a. increasing use of electronic invoicing.
b. improving efficiency, timeliness, and processes.
c. decreased use of imaging.
d. installing electronic payments.
e. cleaning up vendor files.

8.In assessing the risk of material misstatement the vendor who often offers price concessions or terms such that goods do not have to be paid for until the manufactured product is resold is the:
a. manufacturing of construction machinery and equipment.
b. computer manufacturing.
c. retail grocer.
d. hotel.
e. local school district.

9. Factors that may contribute to misstatements in the expenditure cycle assertions include all of the following except:
a. there is usually a high volume of transactions.
b. unauthorized purchases and cash disbursements may be made.
c. purchased assets may be appropriated.
d. there may be duplicate payment of vendor¿s invoices.
e. contentious accounting issues may arise concerning whether a cost should be capitalized or expensed.

10.Cost of Goods Sold divided by Accounts Receivable is the formula for:
a. accounts payable turn days.
b. cost of goods sold to accounts payable.
c. payables as a percentage of total assets.
d. current ratio.
e. quick ratio.

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