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Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

a. Examination of unusual relationship between monthly accounts payable balances and recorded cash payments.

b. Reconciliation of vendor’s statement to the file of receiving reports to identify the items received just prior to the balance sheet date.

c. Investigation of payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.

d. Review of cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

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Reid Wolff
Reid WolffLv2
2 Apr 2020

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The following tests of controls and substantive tests oftransactions audit procedures for
acquisitions and cash disbursements are to be used in the audit ofWard Publishing Company. You
concluded that internal control appears effective and a reducedassessed control risk is likely to be cost
beneficial. Ward’s active involvement in the business, goodseparation of duties, and competent
controller and other employees are factors affecting youropinion.

PART I:

Tests f Controls and Substantive Tests of Transactions AuditProcedures for Acquisitions and
Cash Disbursements
1. Foot and cross-foot the acquisitions and cash disbursementsjournals for 2 months and trace
totals to postings in the general ledger.
2. Scan the acquisitions and cash disbursements journals for allmonths and investigate any unusual
entries.
3. Reconcile cash disbursements per books to cash disbursements perbank statement for 1 moth.
4. Examine evidence that the bank reconciliation is prepared by thecontroller.
5. Inquire and observe whether the accounts payable master filebalances are periodically
reconciled to vendor’s statements by the controller.
6. Examine the log book s evidence that the numerical sequence ofchecks is accounted for by
someone independent of the preparation function.
7. Inquire and observe that checks are mailed by D. Ward or someoneunder his supervision after
he signs checks.
8. Examine initials indicating that the controller balances theaccounts payable master file to the
general ledger monthly.
9. Select a sample of entries in the cash disbursements journaland
a. Obtain related cancelled checks and compare with entry forpayee, date, and amount and
examine signature endorsement.
b. Obtain vendors’ invoices, receiving reports, and purchaseorders, and
1. Determine that supporting documents are attached to vendors’invoices.
2. Determine that documents agree with the cash disbursementsjournal.
3. Compare vendors’ names, amounts, and dates with entries.
4. Determine whether a discount was taken when appropriate.
5. Examine vendors’ invoices for initials indicating an independentreview of chart of
account coding.
6. Examine reasonableness of cash disbursements and accountcodlings.
7. Review invoices for approval of acquisition by Ward.
8. Review purchase orders and /or purchase requisitions for properapproval.
9. Verify prices and recalculate footings and extensions oninvoices.
10. Compare quantities and descriptions on purchase orders,receiving reports, and vendors’
invoices to the extent applicable.
11. Examine vendors’ invoices and receiving reports to determinethat the check numbers
are included and the documents are marked “paid” at the time ofcheck signing.
c. Trace posting to the accounts payable master file for name,amount, and date. 10. Select a sample of receiving reports issuedduring the year and trace to vendors’ invoice and
entries in the acquisitions journal.
a. Compare type of merchandise, name of vendor, date received,quantities, and amounts.
b. If the transaction is indicated in the acquisitions journal aspaid, trace the check number to
the entry in the cash disbursements journal. If unpaid, investigatereasons.
c. Trace transactions to accounts payable master file, comparingname, amount, and date.
Required: Prepare all parts of a sampling datasheet through the planned sample size for the preceding
audit program, assuming that a line item in the cash disbursementjournal is used for the sampling unit.
Use either nonstatistical or attributes sampling. For allprocedures for which the line item in the cash
disbursements journal is not an appropriate sampling unit, assumethat audit procedures were
performed on a nonsampling basis. For all tests of controls, use atolerable exception rate of 5%, and for
all substantive tests of transactions, use a rate of 6%. Use anARACR of 10%, which is considered
medium. Plan for an estimated population exception rate of 1% fortests of controls and 0% for
substantive tests of transactions.
Prepare the data sheet using the computer (also applies to PartII)

Planned Audit

Description of Attributes

EPER

TER

ARO
(10%)

Initial sample size

1 - The most appropriate procedure an auditor can use toensure integrity of the sales and collection cycle isto:

a) Confirm accounts receivables balances.

b)Ensure the bank reconciliations are preparedby one who also handles sales returns so missing items can beaccounted for timely.

c)Recalculate the sales list price of allproducts in the computer files that are accessed by salepersonnel.

2 - When performing audit procedures, which of thefollow must be set prior to testing a sample?

a)Achieved upper precision limit

b) Computed error rate

c) Tolerable error rate

3 - When auditing the inventory cycle the auditor shoulddo all of the following EXCEPT:

a)Adjust the balance in the inventory accountto reflect the perpetual inventory counts

b)Assess the value of obsolete or damagedinventory

c)Review the procedures for the count ofphysical inventory.

4 - Tests of controls for the acquisition and paymentcycle are usually done by:

a)Inquires and documentation of management'srepresentation.

b)Recalculating sales tax amounts

c)Sending out confirmations for amounts under$10,000

5 - Cash is the most desirable asset for people tomisappropriate, when determining risk as part of the audit process,cash would have a higher:

a) Control risk

b)Detection risk

c) Inherent risk

6 - When an auditor looks at a report with over 500purchases and decides to review all of the purchase over $1,000,000this is an example of what type of sampling:

a)Judgmental sampling

b)Statistical sampling

c)This is not sampling

7 - Upon review of your audit findings your discovercash receipts from sales on account have been misappropriate. Whichof the following internal controls may have preventedthis:

a)Ensuring the same person that receives thepayments from customers does not enter transactions into thejournal and post to the ledger

b) Do a background check on all accountspayable personnel before they are hired

c)Verify that the person who receives thepayments does not also write the checks

8 - Upon review of your audit findings you not weakinternal control system that allows a department supervisor to"clock in" for a fictitious employee and then approve theemployee's time card at the end of the pay period. This fraud wouldbe detected if other controls were in place, such as having anindependent party:

a)Compare the date of the recorded check in thepayroll journal with the date on the canceled checks and timecards

b)Distribute paychecks

c)Recompute hours worked from time cards

9 - Different professional standards apply to differenttypes of services offered by a CPA. Assurance services performed bya CPA would include:

a)Audits of financial statements

b)Bookkeeping and accounting system consultingservices

c)Tax service

10 - A CPA may perform all of the following services fordifferent clients EXCEPT:

a)Audits

b)Legal advice relating to accounting ethicsviolations

c)Tax preparation

11 - If an auditor discovers material misstatement afterthe audit report is issued the auditor's first step should benotify

a)The audit firm's legal council

b)The audit committee of the client

c) The client

1. A CPA firm has carried out an audit of the GillespieCorporation. The CPA has uncovered a material misstatement in theinventory balance. However, the CPA does not feel that this problemis so serious as to eliminate the credibility of the financialstatements taken as a whole. What wording will be used to begin theopinion paragraph of the audit report?

A. In our opinion, except for adjustments, if any, that mighthave been found…

B. The scope of our work was not sufficient…

C. In our opinion, except for the effects of…

D. Because of the effects of…

2. When an auditor issues a standard unmodified audit report,the implication is that the auditor:

A. Believes the financial statements are presented fairly inconformity with U.S. GAAP.

B. Does not know if the financial statements are presentedfairly in conformity with U.S. GAAP.

C. Believes the financial statements are presented fairly inconformity with U.S. GAAP except for a specific aspect of them.

D. Does not believe the financial statements are presentedfairly in conformity with U.S. GAAP.

3. A CPA's standard report on audited financial statements wouldbe inappropriate if it referred to

A. Management's responsibilities for the financialstatements.

B. An assessment of the entity's accounting principles.

C. The significant estimates made by management.

D. The CPA's assessment of sampling risk factors.

4. The introductory paragraph of the standard audit reportstates that the financial statements and the opinion expressedabout those statements are:

A. The responsibility of management.

B. The responsibility of the auditor.

C. The joint responsibility of the auditor and management.

4. None of the above.

5. Which of the following procedures would an auditor mostlikely perform to obtain evidence about the occurrence ofsubsequent events?

A. Comparing the financial statements being reported on withthose of the prior period.

B. Confirming a sample of material accounts receivableestablished after year end.

C. Inquiring as to whether any unusual adjustments were madeafter year end.

D. Investigating personnel changes in the accounting departmentoccurring after year end.

6. The date of the management representation letter shouldbe

A. The same date as the latest interim financialinformation.

B. The same date as the latest bank reconciliation.

C. No earlier than the auditor's report.

D. No earlier than the balance sheet.

7. The audit step most likely to reveal the existence ofcontingent liabilities is

A. A review of vouchers paid during the month following theyear-end

B. Mortgage-note confirmation

C. Accounts payable confirmations

D. An inquiry directed to legal counsel

8. The Form 10-K filed by management of a public companyincludes a section on management’s discussion and analysis(MD&A) in addition to the annual financial statements. Which ofthe following best describes the auditor’s responsibility for theMD&A information?

A. The auditor must perform sufficient appropriate auditprocedures to opine on the MD&A information.

B. The auditor has no responsibilities related to the MD&Adisclosures.

C. The auditor must read the MD&A information to determineif there is any material inconsistency with the audited financialstatements.

D. The auditor must provide a disclaimer of opinion related tothe MD&A information.

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