Auditing and Assurance Services, 16e (Arens/Elder/Beasley)
Chapter 18 Audit of the Acquisition and Payment Cycle: Tests of Controls,
Substantive Tests of Transactions, and Accounts Payable
18.1 Learning Objective 18-1
1) The overall objective in the audit of the acquisition and payment cycle is
A) to ensure the reliability of the affected accounts.
B) to ensure the accuracy of the affected accounts.
C) to evaluate whether the affected accounts are fairly presented in accordance with accounting
standards.
D) to evaluate whether fraudulent payments were made.
2) Which of the following accounts is not part of the acquisition and payment cycle?
A) prepaid expenses
B) accounts payable
C) sales returns and allowances
D) property, plant, and equipment
3) Which of the following is not one of the classes of transactions in the acquisition and payment
cycle?
A) acquisition of common stock
B) acquisition of goods and services
C) cash disbursements
D) purchase returns and allowances and purchase discounts
4) Which of the following accounts is not included in the acquisitions class of transactions?
A) inventory
B) prepaid expenses
C) sales discounts
D) accounts payable
5) The acquisition and payment cycle consists of one class of transactions.
6) The cash account is not part of the acquisitions and payment cycle.
7) Auditing the acquisition and payment cycle often takes more time than any other cycle.
18.2 Learning Objective 18-2
1) What typically initiates the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods or services
B) issuance of payment to vendor
C) approval of a new vendor
D) purchase requisition
2) What typically ends the acquisitions and payment cycle?
A) issuance of a purchase requisition or request for purchase of goods/services
B) issuance of a payment on accounts payable
C) approval of a new vendor
D) purchase requisition
3) A document indicating a reduction in the amount owed to a vendor because of returned goods
is
A) a debit memo.
B) a credit memo.
C) a receiving report.
D) a contractual adjustment form.
4) A document used by organizations to establish a formal means of recording and controlling
acquisitions which usually contains a package of documents about the acquisition is the
A) voucher.
B) purchase order.
C) receiving report.
D) purchase requisition.
5) The computer-generated file which records acquisitions, disbursements and allowances for
each vendor is the
A) accounts payable master file.
B) cash disbursements file.
C) acquisitions transaction file.
D) purchase approval file.
6) Which of the following business functions is not considered to be part of the acquisitions class
of transactions?
A) processing purchase orders
B) recognizing liabilities
C) receiving goods and services
D) processing cash disbursements
7) Smaller privately held companies may not maintain an accounts payable master file by
vendor. These companies pay on the basis of
A) vendors’ monthly statements.
B) individual vendors’ invoices.
C) the accounts payable account in the general ledger.
D) dunning letters.
8) After a purchase requisition is approved, a ________ must be initiated to purchase the goods
or services.
A) purchase order
B) vendor order
C) call order
D) vendor invoice
9) A document generally received from the vendor which indicates a reduction in the amount
owed due to the company granting an allowance is a
A) vendor invoice.
B) debit memo.
C) credit adjustment form.
D) credit memo.
10) Absent disputed amounts and minor timing differences, the vendor’s statements should
reconcile to the
A) acquisition journal.
B) accounts payable master file.
C) cash disbursements amount for purchases.
D) vouchers payable amount for vendors.
11) At what point in the acquisition and payment cycle do most companies first recognize the
acquisition and related liability on their records?
A) when the purchase requisition is received by the accounting department
B) when the purchase order is prepared
C) when the company receives the invoice from the vendor
D) when the company receives the goods or services from the vendor
12) In the processing and recording of cash disbursements,
A) after a check includes the signature of an authorized person, it is a liability.
B) when a check cashed by the vendor has cleared the bank, it is called an outstanding check.
C) in many cases, the company submits payment to the vendor electronically through an
electronic funds transfer (EFT) between the company’s bank and the vendor’s bank.
D) the accounts payable master file is a computer-generated file that includes all cash
disbursement transaction processed by the accounting system for a period.
13) List the four business functions in the acquisition and payment cycle.
14) Discuss each of the four business functions that comprise the acquisition and payment cycle.
15) Describe purchase requisitions and purchase orders. What is a key difference between the
two documents?
16) Match seven of the terms for documents and records (a-m) used in the acquisitions and cash
disbursement cycle with the descriptions provided below (1-7):
a. purchase requisition
b. purchase order
c. receiving report
d. acquisitions journal
e. summary acquisitions report
f. vendor’s invoice
g. debit memo
h. voucher
i. accounts payable master file
j. accounts payable trial balance
k. vendor’s statement
l. check
m. cash disbursements journal
________ 1. a document indicating a reduction in the amount owed to a vendor because of
returned goods or an allowance granted
________ 2. a document received from the vendor which shows the amount owed for an
acquisition
________ 3. a document prepared by the purchasing department indicating the description,
quantity, and related information for goods and services that the company intends to purchase
________ 4. a listing of the amount owed to each vendor at a point in time
________ 5. a document used to establish a formal means of recording and controlling
acquisitions; it includes a cover sheet and a package of relevant documents
________ 6. a document used to request goods and services by an authorized employee
________ 7. the listing or report that includes all cash payments for a given period
17) The acquisition and payment cycle typically begins with the initiation of a purchase
requisition for goods and services from an authorized individual.
18) A vendor invoice is normally prepared at the time tangible goods are received and indicates
the description of goods, the quantity received, the date received, and other relevant data.
19) A document received from the vendor indicating such things as the description and quantity
of goods and services received, price including freight, cash discount terms, and date of billing is
called the voucher.
20) An acquisitions transaction file is a computer generated file that includes all information
entered into the system regarding acquisition transactions.
21) The acquisition and payment cycle ends with the receiving of the goods or services.
18.3 Learning Objective 18-3
1) You have been assigned to the accounts payable transaction cycle as part of your auditing
responsibilities. You have decided to vouch a sample of entries in the accounts payable master
file to supporting documents. Which assertion is this test of controls most likely to support?
A) accuracy
B) classification
C) completeness
D) occurrence
2) An auditor is gathering evidence on the completeness assertion. To do so, she performs a test
to verify that all goods received by the company have been recorded properly. The document
population for this test would consist of all
A) vendor invoices.
B) purchase orders.
C) receiving reports.
D) cash disbursements for accounts payable.
3) Which of the following is not an accurate statement regarding the acquisition and payment
cycle?
A) The personnel in the receiving department should be independent of the storeroom personnel.
B) Goods received should be physically controlled from the time of their receipt until their use or
disposal.
C) Accounting records should transfer responsibility for the goods each time they are moved.
D) The accounting department should be responsible for receiving goods and preparing the
receiving report.
4) When reviewing the controls and procedures in the acquisition and payment cycle,
A) companies cannot record the liability for the acquisition until the invoice is received from the
vendor.
B) the purchasing department has the responsibility for verifying for appropriateness of the
acquisition.
C) personnel who record the acquisitions should not have access to cash or other assets.
D) the accounts payable department should account for all receiving reports to assure that the
occurrence objective is satisfied.
5) A written purchase order is a contractual document that is
A) an offer to buy goods or services.
B) not enforceable if it is not in writing.
C) prepared by the receiving department.
D) an acceptance of a vendor’s catalog offer to sell.
6) Which one of the following duties should not be assigned the purchases department?
A) finding the lowest cost vendor
B) reviewing vendors’ catalog descriptions and prices for standardized items
C) designing the purchase order form
D) authorizing the acquisition of goods
7) The accounts payable department usually has responsibility for approving acquisitions for
payment by comparing the details on the
A) vendor’s invoice and the receiving report.
B) vendor’s invoice and the purchase requisition.
C) purchase order, receiving report, and vendor’s invoice.
D) purchase requisition, purchase order, and receiving report.
8) A substantive tests of transactions for acquisitions that would be used to provide evidence
regarding the occurrence assertion would be to
A) compare the classification with the chart of accounts by referring to vendors’ invoices.
B) recompute the clerical accuracy on the vendors’ invoice.
C) review the acquisitions journal for large or unusual amounts.
D) trace from a file of receiving reports to the acquisition journal.
9) When testing the controls for the completeness transaction-related audit objectives,
A) failure to record the acquisition of goods or services will generally understate net income.
B) failure to record the acquisition of goods or services has no impact on the balance sheet.
C) it is generally easy for the auditor to determine whether unrecorded transactions exist.
D) the audit time for accounts payable can be reduced if the client has effective internal controls
and the auditor properly tests those controls.
10) Which of the following is not a key control in the acquisition and payment cycle?
A) authorization of purchases
B) authorization of credit
C) timely recording and independent review of transactions
D) authorization of payments
11) A key internal control over the acquisition cycle is to ensure that the company requires
recording transactions as soon as possible after the goods and services have been received. This
satisfies the transaction-related audit objective of
A) accuracy.
B) completeness.
C) timing.
D) occurrence.
12) When a client uses perpetual inventory records, the tests of details of balances for inventory
can be significantly reduced if the auditor believes the records are accurate. The controls over the
acquisitions included in the records are normally tested as a part of the
A) tests of controls for acquisitions.
B) tests of controls and substantive tests of transactions for acquisitions.
C) tests of details of balances for acquisitions.
D) analytical procedures and tests of controls for acquisitions.
13) The auditor’s internal control objective to determine that “recorded acquisitions are for goods
and services received” satisfies the audit objective of
A) accuracy.
B) occurrence.
C) authorization.
D) completeness.
14) Failure to record the acquisition of goods is a violation of which audit objective?
A) accuracy
B) occurrence
C) authorization
D) completeness
15) The internal control that requires that “checks are prenumbered and accounted for” satisfies
the objective of
A) accuracy.
B) existence.
C) completeness.
D) posting and summarization.
16) Because of the importance of tests of controls and substantive tests of transactions for
acquisitions and cash disbursements, it is common in this audit area to use
A) block sampling.
B) variables sampling.
C) attributes sampling.
D) probability proportional to size sampling.
17) Which of the following tests of controls is least useful in assessing the transaction-related
audit objective related to occurrence?
A) Examine documents in voucher package for occurrence.
B) Examine supporting documents for indication of approval.
C) Account for sequence of vouchers.
D) Attempt to input transactions with valid and invalid vendors.
18) You are performing the audit of Jenkins and Company. Your tests of controls and tests of
transactions for accounts payable demonstrate that the controls are operating effectively. This
would normally allow you to
A) eliminate the need for substantive testing of balances for accounts payable.
B) reduce the need for substantive testing of balances for accounts payable.
C) reduce control tests in other transactions cycles.
D) increase the need for substantive testing of balances for accounts payable.
19) An auditor is using audit sampling to test transactions in the acquisition and payment cycle.
She would normally set the tolerable exception rate at what level?
A) Low
B) Medium
C) High
D) Indeterminate
20) Which of the following is the most effective control procedure to detect vouchers that were
prepared for the payment of goods that were not received?
A) Count goods upon receipt in storeroom.
B) Match purchase order, receiving report, and vendor’s invoice for each voucher in accounts
payable department.
C) Compare goods received with goods requisitioned in receiving department.
D) Verify vouchers for accuracy and approval in internal audit department.
21) Which of the following should sign checks under conditions of effective internal control?
A) treasurer
B) purchasing agent
C) accounts payable clerk
D) person preparing the checks
22) Which of the following is a key internal control for the posting and summarization
transaction-related audit objective?
A) Batch totals are compared with computer summary reports.
B) Documents are canceled.
C) Dates are internally verified.
D) The accounts payable master file contents are internally verified.
23) The test of transactions which requires one to “reconcile recorded cash disbursements with
the cash disbursements on the bank statement” satisfies the objective of
A) occurrence.
B) completeness.
C) accuracy.
D) posting and summarization.
24) For effective internal control purposes, the accounts payable department generally should
A) approve the purchase order.
B) have the authority to sign the checks.
C) establish the agreement of the vendor’s invoice with the receiving report and purchase order.
D) supervise the preparation of the receiving report.
25) An auditor performs a test to determine whether all merchandise for which the client was
billed was received. The population for this test consists of all
A) merchandise received.
B) vendors’ invoices.
C) canceled checks.
D) receiving reports.
26) Matching the supplier’s invoice, the purchase order, and the receiving report prior to
preparing the voucher would normally be the responsibility of the
A) warehouse receiving function.
B) purchasing function.
C) general accounting function.
D) treasury function.
27) A CPA learns that his client has paid a vendor twice for the same shipment, once based upon
the original invoice and once based upon the monthly statement. A control procedure that should
have prevented this duplicate payment is
A) attachment of the receiving report to the disbursement report.
B) prenumbering of disbursement vouchers.
C) use of a limit or reasonableness test.
D) prenumbering of receiving reports.
28) With respect to a small company’s system of purchasing supplies, an auditor’s primary
concern should be to obtain satisfaction that supplies ordered and paid for have been
A) requested by and approved by the same individual.
B) used in the course of business and solely for business purposes during the year under audit.
C) received, counted, and checked to quantities and amounts on purchase orders and invoices.
D) properly recorded as assets and systematically amortized over the estimated useful life of the
supplies.
29) Internal controls that are likely to prevent the client from including as a business expense
those transactions that primarily benefit management or other employees rather that the entity
being audited satisfy the control objective that
A) acquisitions are correctly valued.
B) existing acquisitions are recorded.
C) acquisitions are correctly classified.
D) recorded acquisitions are for goods and services received.
30) What are the three most important controls over cash disbursements?