8.23 Which of the adhering to accounts does not appear in the acquisition and also expenditure cycle?

a. Cash

b. Purchases Returns

c. Sales Returns

d. Prepassist Insurance




You are watching: Which of the following would not overstate current-period net income?

8.23 Answer: C.

Although similiar to purchases bereason they require a recieving report, sales retransforms are taken into consideration component of the revenue and repertoire cycle because they impact account recievable.


8.24 For which of the adhering to accounts would certainly the equivalent principle be the the majority of appropriate?

a. Cost of items sold

b. reserach and also development

c. depreciation expense

d. sales


8.24 Answer: A

Cost of items offered have to be matched via sales by making use of inventory to document price of items not yet marketed.


8.25 Which of the complying with would not overstate current duration net income?

a. capitalizing an expenditure that should be expensed

b. failing to record a licapacity as an cost.

c. failing to record a inspect paying an item in Vounchers Payable.

d. every one of the over would certainly overstate net revenue.


8.26 A Client"s purchasing mechanism ends via the recording of a licapability and also its ultimate payment. Which of the following ideal describes auditors" rpimary problem through respect to liabilities resulting from the purchasing system?

a. accounts payable are not materially understated

b. authority to incur liabilities is minimal to one designated perchild.

c. acquisition of materials is not made from one merchant or one group of merchants.

d. committments for all purchases are made just after establiburned competitive bidding procedures are adhered to.


8.26 Answer: A

The completeness assertation is exceptionally essential in the adult of liabilities.


8.27 Which of the following is an interior control task that can proccasion a phelp disbursement voucher from being presented for payment a 2nd time?

a. vouchers have to be prepared by people that are responsible for signing disbursement checks

b. disbursement vouchters have to be within a few days of the day the voucher is presented for payment.

c. the day on a disbursmenet voucher have to be within a few days of the date the voucher is presented for payment

d. the main who signs the examine have to compare the check via the voucher and have to stamp "PAID on the voucher papers.


8.27 Answer: D

Cancellation of vouchers (PAID) stays clear of their usage a second time.


8.28 Budd, the purchasing agent of Lake Hardware Wholesalers, has actually a loved one that owns a retail hardware save. Budd arranged for hardware to be delivered by manufactures to the retail keep on a cash-on-delivery (COD) basis, thereby allowing his family member to buy at Lake"s wholesale prices. Budd was most likely able to attain this because of Lake"s negative internal manage over...

a. Acquisition requisitions

b. cash receipts

c. perpetual inventory records

d. purchase orders


8.28 Answer: D.

Nobody at Lake was reviewing purchase orders to alert the delivery and also payment by one more party (budd"s relative"s store). This deviation led to no direct loss to Lake, yet it is a misuse of Lake"s pricing agreements via its sellers and also puts Lake at hazard.


8.29 Which of the adhering to is the best audit procedure for determining the visibility of unrecorded liabilities?

a. examine confirmation requests reverted by creditors whose accounts are on a subsidiary trial balance of accounts payable.

b. research a samble of cash disbursements in the duration subsequent to year-finish.

c. research a sample of invoices a couple of days before and also succeeding to the year-end to asparticular whether they have been properly recorded.

d. study inexplicable relationships between montly accoutns payable and also recorded purchases.


8.29 Answer: B

auditors might be able to identify that cash disbursments in the succeeding period are paying liabilities of the duration under audit.


8.30 Which of the complying with steps is leastern likely to be performed before the balance-sheet date?

a. monitoring of inventory

b. testimonial of internal manage over cash disbursments.

c. search for untape-recorded liabilities.

d. confirmation of recievables.


8.30 Answer: C

The serach for unvideotaped liabilities mostly depends upon utilizing accountancy documents developed in the duration after the year finish.


8.31 To determine whether accounts payable are finish, auditors perform a test to verify that all merchandise recieved has actually been taped. The population for this test is composed of all

a. vendors" invoices

b. purchase orders

c. recieving reports

d. canceled checks


8.31 Answer: C

the recieving reports are the populace that has the record of all the goods recieved for which liabilities should be recorded.


8.32 When verifiying debits to the perpetual inventory records of a nonproduction company, auditors would certainly be many interested in researching a sample of purchase...

a. approvals

b. requisitions

c. invoices

d. orders


Answer: C

Invoices supply appropriate indevelopment around the amounts purchased and prices passist.


8.33 A furniture compay ordered 84 tables from a supplier. The supplier accidentally sent out just 48 tables, however the recieiving department at the furniture agency accepted the tables. The invoice was ultimately recieved yet was for the original 84 tables. The furniture agency paid the whole amount. Which of the following controls owuld have actually been leastern likely to have actually prevented this erroneous payment.

a. the copy of the purchase order sent out to the furniture company"s recieiving deparment need to not have actually displayed an intended quantitiy.

b. personnel in the furniture company"s accounts payable department have to compare the recieiving report to the purchase invoice prior to production of the voucher.

c. personnel in the furniture company"s cash disbursements department should compare the examine that is prepared to all the backup docmentation.

d. personnel in the furniture company"s purchasing department have to compare the purchase requisition with the purchase order.


8.33 Answer: D

The purchase order and requistion would certainly both display 84 tables.


8.34 Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair agency and recieved the checks at a write-up office box. This have to have actually been prevented by

a. compariboy of the ocmpany name to the approved vendor list by the check signer.

b. recognition of the excess maintenance costs by Curtis"s supervisor.

c. refusal by the purchasing department to approve the vendor.

d. every one of the above


8.34 Answer: C

Vendors should be approved by an independent purchasing department


8.35 An audit team would certainly the majority of likely study the detail assistance for charges to which of the complying with acounts?

a. payroll expense

b. price of goods sold

c. gives expense

d. legal expense


8.35 Answer: D

The auditor examines the particular charges to identify potential litigation.


8.36 Which of the adhering to would a lot of likely be audited in link with a connected balance-sheet account?

a. home taxes expense

b. payroll expense

c. research study and also development

d. legal expense


8.36 Answer: A

Property taxes expesne is audited in conjunction with accrued property taxes


8.37 When auditing account balances of liablities, auditors are the majority of concerned with management"s assertation around

a. existence

b. civil liberties and also obligations

c. completeness

d. valuation and allocation


8.37 Answer: C

Completeness is the most necessary assertation in this cycle. the hididng of liabilities is a main concern for all auditors in the licapacity and also price areas. Supplies expense is genearlly audited in link through offers inventory.


8.38 In a test of controls, auditors may trace recieving reports to vouchers videotaped in the voucher register. This is a test for

a. occurrence

b. completeness

c. classification

d. cutoff


8.38 Answer: B

This test ensures that liabilities produced by the reciept of items are taped in the voucher register.


8C.8 An audit team the majority of most likely would assess regulate hazard at the maximum if the payroll department supervisor is responsible for

a. researching authorization forms for brand-new employee

b. comparing payroll registers via original batch transmittal data

c. authorizing payroll price transforms for all employees

d. hiring all subordinate payroll department employees


8c.8 Answer: C

The payroll department need to be independent of the personnel department, which would be responsible for authorizing all payroll rate transforms for the employees of the entity. A supervisor would certainly be authorized, but, to inititate researches for price boosts for looked after employees.


8c.9 Which of the complying with departments most likely would grant changes in pay prices and also deductions from employee salaries?

a. personnel

b. treasurer

c. controller

d. payroll


8c.9 Answer: A

The personnel department provides the authorization for payroll-connected transactions (e.g. hiring, termicountry, and transforms in pay rates and also deductions).


8c.10 Matthew Corp. has changed from a device of recording time operated on clock cards to a computerized payroll system in which employees document time in and out through magnetic cards. The computerized devices automatically updates all payroll records. Because of this change

a. a generalized computer audit regime should be used

b. part of the audit trail is altered

c. the potential for payroll-connected fraud is diminished

d. transactions must be processed in batches


8c.10 Answer: B

In a hand-operated payroll system, a file trail of records would be created to administer audit proof tht controls over each action in handling were in area and also functioning. One facet of a computer mechanism that differentiates it from a hand-operated device is that a transaction trail beneficial for auditing puroposes might exist just for a brief time or only in a computer-readable create.


8c. 11 Effective regulate over the cash payroll function would mandate which of the following?

a. the payroll clerk need to fill the envelopes via cash and also a computation of the net wages.

b. unasserted payroll enevelopes have to be preserved by the payunderstand.

c. each employee need to be asked to authorize a receipte

d. a sepaprice checking account for payroll be maintained


8c.11 Answer: C

Under a cash payroll mechanism, the reciept signed by the employee is the just document in support of payment. The signed receipt is necessary to verify correct payment.


8c.12 A huge retail enterpclimb has established a plan that requires the payunderstand to supply all undeclared payroll checks to the inner audit department at the finish of each payroll circulation day. This plan was a lot of most likely embraced to

a. ensure that employees who were missing on a payroll distriubtion day are not phelp for that day

b. proccasion the paymaster from cashing checks that are undeclared for numerous weeks.

c. proccasion bona fide employee"s check from being claimed by an additional employee

d. detect any type of fictitious employee who may have actually been inserted on the payroll.


8c.12 Answer: D

A follow-up of undeclared checks may cause identification of fictitious or terminated employees, hence eliminating an employee"s chance to clai a payinspect belonging to a terminated employee. The unasserted checks should then be turned over to a custodian so the interior audit attribute does not assume operating obligations.


8c.13 Auditors ordinarily asspecific whether payroll checks are correctly endorsed during the audit of

a. clock cards

b. the voucher system

c. cash in bank

d. accrued payroll


8c.13 Answer: A

Ordinarily, the auditor examines the endorsements on payroll checks while obtaining an understanding of and also experimentation the payroll cycle, which has consideration of clock cards.


8c.14 In determining the performance of an entitity"s policies and procedures relating to the event assertation for payroll transactions, auditors most most likely would certainly inquire about and

a. observe the separation of duties concering personnel responsibilities and payroll disbursement.

b. check proof of accountancy for prenumbered payroll checks.

c. recompute the payroll deductions for employee fringe benefits.

d. verify the perpartion of the monthly payroll account financial institution reconciliation.


8c.14 Answer: A

In considering whether transactions actually emerged, the auditory is the majority of conerned around th ecorrect separation of duties in between the personnel department (authorization) and also the payroll department (processing the transactions).


8c.15 Which of the following activities most likely would be taken into consideration a weakness in an entity"s inner regulate over payroll?

a. a voucher for the maount of the payroll is prepared in the general bookkeeping department based upon the payroll department"s payroll summary.

b. payroll checks are ready by the accoutns payable department and signed by the treasurer.

c.. the employee that distributes payroll inspect returns undeclared payroll checks to the payroll department.

d. the personnel department sends employees" termination noties to the payroll department


8c.15 Answer: C

The payroll department assembles payroll information, which is a recording feature. Custody of assests, such as an unclaimed payroll checks, is incompatible with record keeping.


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