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Toaz - Info MCQ Liabilities PR
Toaz - Info MCQ Liabilities PR
The auditor will most likely perform extensive tests for possible understatement of
a. Revenue
b. Assets
c. Liabilities
d. Equity
2. In auditing accounts payable, an auditor’s procedures most likely will focus primarily
on management’s assertion of
a. Existence
b. Completeness
c. Presentation and disclosure
d. Valuation and allocation
3. Which of the following audit procedures is not appropriate for addressing the
assertion of valuation?
a. Confirm with creditors
b. Test for unrecorded liabilities
c. Perform analytical procedures
d. Verify accounts payable trial balance
4. Which of the following is a substantive test that an auditor an auditor most likely
would perform to verify the existence and valuation of recorded accounts payable?
a. Vouching selected entries in the accounts payable subsidiary ledger to purchase
orders and receiving reports.
b. Confirming accounts payable balances with known suppliers who have zero
balances.
c. Investigating the open purchase order file to ascertain that prenumbered purchase
orders are used and accounted for
d. Receiving the client’s mail, unopened, for a reasonable period of time after the year-
end to search for unrecorded vendor’s invoices
5. Auditor confirmation of accounts payable balances at the balance sheet date may be
unnecessary because:
a. This is a duplication of cutoff tests
b. Accounts payable balances at the balance sheet date may not be paid before the audit
is completed
c. Correspondence with the audit client's attorney will reveal all legal action by vendors
for nonpayment
d. There is likely to be other reliable external evidence available to support the balances
6. To identify whether accounts payable are complete, an auditor performs a test to verify
that all merchandise received is recorded. The population of documents for this test
consists of all
a. Payment vouchers c. Purchase requisitions
b. Receiving reports d. Vendors’ invoices
7. An auditor traced a sample of purchase orders and the related receiving reports to the
purchases journal and the cash disbursements journal. The purpose of the substantive
audit procedure was most likely to
a. Verify that cash disbursements were for goods actually received
b. Determine that purchases were properly recorded
c. Test whether payments were for goods actually ordered
d. Identify unusually large purchases that should be investigated earlier
8. Which of the following procedures would an auditor most likely perform in searching
for unrecorded payables?
a. Compare cash payments occurring after the end of the reporting period with
the accounts payable trial balance.
b. Reconcile receiving reports with related cash payments made just prior to year-end
c. Contrast the ratio of accounts payable to purchases with the prior year’s ratio
d. Vouch a sample of creditor balances to supporting invoices, receiving reports and
purchase orders
9. When an auditor selects a sample of items from the vouchers payable register for the
last month of the period under audit and traces these items to underlying documents,
the auditor is gathering evidence primarily in support of the assertion that
a. Recorded obligations were paid
b. Incurred obligations were recorded in the correct period
c. Recorded obligations were valid
d. Cash disbursements were recorded as incurred obligations
10. In conducting a search for unrecorded liabilities, the auditor should do all but the
following:
a. Examine prior year’s audit workpapers to ascertain that adjustments for unrecorded
liabilities have not been overlooked
b. Examine invoices paid a few days prior to the end f the reporting period
c. Examine paid invoices for a short period following the end of the reporting period
and trace to client’s year-end adjustment for unrecorded liabilities
d. Examine unpaid invoices for a short period following the end of the reporting period
and trace to client’s year-end adjustment for unrecorded liabilities
12. Two months before the year end, the bookkeeper erroneously recorded the receipt of a
long term bank loan by a debit to cash and a credit to sales. Which of the following is
the most effective procedure for detecting this type of error?
a. Analyze the notes payable journal
b. Analyze bank confirmation information
c. Prepare a year-end bank reconciliation
d. Prepare a year-end bank transfer schedule
14. Which of the following is not used to test overstatements and understatements of
accounts payable?
a. Unmatched receiving reports
b. Canceled voucher packages
c. Cash receipts records
d. Cash disbursement records
15. During the course of an audit, an auditor observes that the recorded interest expense
seems excessive in relation to the balance in long-term debt. This observation could lead
the auditor to suspect that
a. Long-term debt is overstated
b. Long-term debt is understated
c. Premium on bonds payable is understated
d. Discount on bonds payable is overstated
16. An auditor’s program to examine long-term debt most likely would include steps that
require
a. Correlating interest expense recorded for the period with outstanding debt
b. Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt
c. Comparing the carrying amount of the debt to its year-end market value
d. Verifying the existence of the holders of the debt by direct confirmation
17. A CPA analyzes the accrued interest payable accounts for the year, recomputes the
amounts of payments and beginning and ending balances and reconciles to the interest
expense account. Which error or questionable practice below has the best chance of being
detected by this specific audit procedure?
a. Interest paid on an open account was charged to the purchase account
b. Interest revenue of P120 on a note receivable was credited against miscellaneous
expense
c. A note payable has not been recorded. Interest of P300 on the note was properly
paid and charged to the interest expense account
d. There was a violation of a term in the client’s loan agreement prohibiting dividends
on common stocks unless net income available for interest and dividends is at least
three times interest requirements
18. During the audit of a publicly held company, the auditor could obtain written
confirmation regarding long-term bond transactions from the
a. Bondholders c. Client’s attorney
b. Internal auditors d. Trustee
19. During its fiscal year, a company issued, at a discount, a substantial amount of first
mortgage bonds. When performing audit work, the independent auditor
a. Confirms the existence of the bondholders
b. Reviews the minutes for authorization
c. Traces the net cash received from the issuance to the bonds payable account
d. Inspects the records maintained by the bond trustee
20. An auditor’s purpose in reviewing the renewal of a note payable shortly after the end
of the reporting period most likely is to obtain evidence concerning management’s
assertion about
a. Existence
b. Completeness
c. Presentation and disclosure
d. Valuation and allocation