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Key Audit Procedures for Accounts Payable

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30 views2 pages

Key Audit Procedures for Accounts Payable

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Uploaded by

hoonj7506
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Question 7

In auditing intangible assets, an auditor most likely would review or recompute amortization and
determine whether the amortization period is reasonable in support of management's financial
statement assertion of
Choices:
A. Accuracy, valuation, or allocation.
B. Existence.
C. Completeness.
D. Rights and obligations.
Correct answer: Accuracy, valuation, or allocation.
Question 8
Which of the following procedures relating to the examination of accounts payable could the
auditor delegate entirely to the client’s employees?
Choices:
A. Test footings in the accounts payable ledger.
B. Reconcile unpaid invoices to vendors’ statements.
C. Prepare a schedule of accounts payable.
D. Mail confirmations for selected account balances.
Correct answer: Prepare a schedule of accounts payable.
Question 9
An examination of the balance in the accounts payable account as a part of a financial
statement audit is ordinarily not designed to
Choices:
-
Detect accounts payable which are substantially past due.
-
Verify that accounts payable were properly authorized.
-
Ascertain the reasonableness of recorded liabilities.
-
Determine that all existing liabilities at the balance sheet date have been recorded.
Response: Verify that accounts payable were properly authorized.
Feedback: An examination of the accounts payable account as part of a financial statement
audit is not designed to verify that accounts payable were properly authorized. Authorization is
part of internal control testing, not a specific objective of a substantive examination of accounts
payable. The audit is designed to detect past-due payables, ascertain the reasonableness of
liabilities, and ensure all liabilities are recorded at the balance sheet date.
Correct answer: Verify that accounts payable were properly authorized.
Score: 1 out of 1
Yes
Question 10
When auditing a public warehouse, which of the following is the most important audit procedure
with respect to disclosing unrecorded liabilities?
Choices:
-
Confirmation of negotiable receipts with holders.
-
Review of outstanding receipts.
-
Inspection of receiving and issuing procedures.
-
Observation of inventory.
Response: Inspection of receiving and issuing procedures.
-
Verify footings and cross footings of purchases and disbursement records.
-
Compare purchase invoice terms with disbursement records and checks.
-
Compare approved purchase orders to receiving reports.
-
Verify the receipt of items ordered and invoiced.
Response: Compare purchase invoice terms with disbursement records and checks.
Feedback: The best way to detect an understatement of a purchase discount is to compare
purchase invoice terms with disbursement records and checks. This comparison ensures that
any discounts offered on the invoice have been properly applied when payment is made.
Verifying footings, comparing purchase orders to receiving reports, and verifying receipt of items
do not address the terms of payment or discounts, which are key to identifying any
understatement of purchase discounts.
Correct answer: Compare purchase invoice terms with disbursement records and checks

Common questions

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Comparing purchase invoice terms with disbursement records and checks is effective in detecting understated purchase discounts because it ensures that any discounts available have been accurately captured during the payment process. This comparison checks that the terms of discounts offered per the invoice are properly reflected in the actual payments, preventing any potential understatement of discounts that would otherwise lead to overstated expenses or liabilities .

An auditor reviews or recomputes amortization to ensure the accuracy, valuation, or allocation of intangible assets. This process supports the management's financial statement assertion by verifying that the amortization period is reasonable and consistent with the asset's useful life. Ensuring correct amortization impacts the presentation of the company's financial position, affecting the balance sheet and income statement .

Inspection of receiving and issuing procedures is crucial because it helps auditors identify unrecorded liabilities, such as inventory that has been received but not yet accounted for in the financial statements. By physically inspecting the processes, auditors can understand whether the warehouse operations are adequately logging and recording transactions. This procedural compliance directly impacts the accuracy and completeness of recorded liabilities and contributes to a stronger internal control environment .

Verifying the authorization of accounts payable is part of internal control testing, not the primary objective of substantive auditing procedures. Substantive procedures in auditing accounts payable aim to identify overdue payables, ascertain liabilities' reasonableness, and ensure all obligations are recorded by the balance sheet date. Authorization checks are a control function, ensuring that transactions are approved according to company policies, rather than a key focus in liability substantiation .

Delegating the preparation of a schedule of accounts payable to the client’s employees allows auditors to use the client’s internal resources for routine tasks. This delegation supports efficiency as it frees auditors to focus on higher-risk audit areas such as verification and confirmation processes. While preparing the schedule provides a baseline, auditors must still perform auditing procedures to independently verify the information prepared by the client .

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