TRANSACTIONCYCLES (BOBADILLA)

REVENUE AND RECEIPTS CYCLE Test of Controls

1.Which of the following business functions is associated with the revenue/receipts cycle?
A. Obligations are paid to vendors and employees.
B. Resources are distributed to outsiders in exchange for promises of future payments.
C. Resources are used, held, or transformed.
D. Capital funds are received from investors and creditors.

2.Which of the following is not a common activity in the revenue/receipt cycle?

A. Order entry
B. Receiving
C. Inventory control
D. Cash collection

3.The cash account is involved in which cycle?

A. Revenue and collection.
B. Acquisition and expenditure.
C. Production and conversion.
D. All of the given choices.

4.Which of the following is an appropriate audit procedure to test cancelled checks for authorized
signatures?
A. Compare the check date with the first cancellation date.
B. Determine that all checks are to be signed by individual officers who are authorized by the board. C.
Examine a representative sample of signed checks and trace their signatures to the specimen signature
book of authorized signatories.
D. Confirm the signatures from a sample of checks directly with the bank.

5.Which of the following is not likely a source of information about the accounting system in the revenue
area?
A. Direct inquiry of customers.
B. Prior experience with the client.
C. Systems flowcharts prepared by the EDP department.
D. Financial reporting manuals.

6.Which of the following gives an indication of a potential fraudulent activity?

A. Numerous credit memoranda have been issued to the company's biggest customer.
B. Internal auditor cannot locate several credit memoranda to support reductions of customers'
balances.
C. The year-end bank reconciliation has no outstanding checks or deposit older than 15 days.
D. No one was absent the day the auditors handed out the paychecks.

7.Which of the following procedures could prevent or detect errors or frauds arising from shipments
made to unauthorized parties?
A. Document policies and procedures for scheduling the shipments of goods.
B. Establish procedures for reviewing and approving the prices and sale terms before sale.
C. Prenumber the bills of lading and assure that the related billings are made on a periodic basis. D.
Prepare and periodically update the lists of authorized customers.

8.Which of the following control procedures would most likely assure that access to shipping, billing,
inventory control, and accounting records is restricted to personnel authorized
by management?
A. Segregate the responsibilities for authorization, execution, and recording, and prenumber and
control the custody of documents.
B. Establish the cash receipts function in a centralized location and require a daily reconciliation of cash
receipts records and deposit slips.
C. Establish policy and procedures manuals, organization charts, and supporting documents. D.
Periodically substantiate and evaluate the recorded account balances.

9.An entity has implemented a control procedure which requires that authorized personnel reconcile
the total of individual customer accounts receivable of the following control objectives?
A. Sales, cash receipts, and related transactions should be recorded at the correct amounts, in the
proper period, and should be properly classified.
B. Recorded accounts receivable balances should reflect underlying transactions and events.
C. Billings, collections, and related adjustments transactions should be posted accurately to individual
customer accounts.
D. Access to cash and cash-related records should be restricted to personnel authorized by
management.

10.Which of the following internal control procedures most likely would deter lapping of collections from
customers?
A. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash
summaries.
B. Authorization of write-offs of uncollectible accounts by a supervisor who is independent of credit
approval.
C. Segregation of duties between receiving cash and posting collections to the accounts receivable. D.
Supervisor's comparison of the daily cash summary with the sum of cash receipts journal entries.

11.What sequence of steps does an auditor undertake when identifying control procedures that are
potentially reliable in assessing control risk below the maximum?
A. Consider the error or frauds that might occur, determine control procedures, identify control
objectives, and design tests of controls.
B. Determine control procedures, design tests of controls, consider the errors or frauds that might occur
identify control objectives.
C. Identify control objectives, consider the errors or frauds that might occur, determine control
procedures, and design tests of controls.
D. Design tests of controls, determine control procedures, consider the errors or frauds that might occur,
and identify control objectives.

12.Assuming cash receipts from credit sales have been misappropriated, which of the following is likely
to conceal the misappropriation and unlikely to be detected?
A. Understanding the sales journal.
B. Overstating the accounts receivable control account.
C. Overstating the account receivable subsidiary ledger.
D. Overstating the cash receipts journal.

13.Which of the following is most likely to provide management with incentives to overstate earnings?
A. Projected quarterly dividends.
B. Issuance of preferred stock.
C. Unbudgeted increase in materials prices.
D. A projected stock split.

14.Under which of the following of the following circumstances does management have some discretion
in timing the recognition of revenue?
A. The timing of revenues is not reasonably determinable and the earnings process is not complete. B.
The amount and timing of revenue is reasonably determinable.
C. The earning process is complete or reasonably complete.
D. The transaction is at arm's length.

15.After preparing a flowchart of internal control for sales and cash receipts transactions and evaluating
the design of the system, the auditor would perform tests of controls on all control procedures
A. That are documented in the flowchart
B. That is considered to be deficiencies that might allow errors to enter the accounting system.
C. That are considered to be strengths that the auditor plans to rely on in assessing control risk.
D. That would help in preventing irregularities.

16.Which of the following would the auditor consider to be an incompatible operation if the cashier
receives remittances from the mail room?
A. The cashier posts the receipts to the accounts receivable subsidiary ledger.
B. The cashier makes the daily deposit at a local bank.
C. The cashier makes the daily deposit of cash collections.
D. The cashier endorses the checks.

17.Which of the following is not a universal rule for achieving control over cash?
A.Separate the cash-handling and record-keeping functions.
B.Decentralize the receiving of cash as much as possible.
C.Deposit each day's cash receipts by the end of the day.
D.Have bank reconciliation prepared by employees who do not handle cash.

18.On conducting an audit in which point in an ordinary sales transaction of a wholesaling business is
a lack of specific authorization of least concern of the auditor?
A.Granting of credit.
B.Shipment of goods.
C.Determination of discounts.
D.Selling of goods for cash.

19.A company has computerized sales and cash receipts journals. The computer peograms for theses
journals have been properly debugged. The auditor discovered that the total of the accounts receivable
subsidiary accounts differs materially from the accounts receivable control account. This discrepancy
could indicate
A.Lapping of receivables.
B.Credit memoranda being improperly recorded.
C.Receivables not being properly aged.
D.Statements being intercepted prior to mailing.

20.To achieve control when there is no billing department, the billing function should be performed by
A.Accounting department.
B.Sales department.
C.Shipping department.
D.Credit and collection department.

21.The person who opens the mail commonly prepares a remittance advice when a customer fails to
return one with the payment. Consequently, mail should be opened by
A.Credit manager.
B.Receptionist.
C.Sales manager.
D.Accounts receivable clerk.

22.Which of the following control procedures will likely prevent the concealment of a cash shortage that
was perpetrated by improperly writing off a trade account receivable?
A.Write off must beapproved by a responsible officer after reviewing the credit department's
recommendation and supporting evidence.
B.Write off must be supported by an aging schedule showing that only receivables that are several
months overdue have been written off.
C.Write off must be approved by the cashier.
D.Write off must be authorized by field sales representatives.

23.Which of the following would unlikely improve control over an entity's cash?
A.Separate cash record keeping from the custody of cash.
B.Preparing the monthly bank reconciliation.
C.Processing of check in batches, rather than intermittently.
D.Separating cash receipts from cash disbursements.

24.Which of the following would best protect a company that wishes to prevent lapping? A.Segregating
duties so that accounting staff has no access to an incoming mail.
B.Segregating duties so that no employee has access both to checks from customers and money from
money from daily cash receipts.
C.Arrange that customer's send payments directly to the company's bank.
D.Requesting that customer checks be made payable to the company and be addressed to the
treasurer.

25.Which of the following is the greatest drawback of using subsequent collections that are evidenced
only by a deposit slip as an alternative procedure when responses to positive accountsreceivable
confirmations are not received?
A.Checking of subsequent collections can never be used an alternative auditing procedure.
B.A deposit slip is not received directly by the auditor.
C.A customer may not have made a payment on a timely basis.
D.By examining a deposit slip only, the auditor does not know whether the payment is for the receivable
at the balance sheet date or a subsequent transaction.
26.In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction
walk through?
A.To gain an assurance that employees are performing assigned functions accurately.
B.To confirm the results of the auditor's understanding of the internal control structure.
C.To select documents for detailed tests of controls.
D.To verify the results of the auditor's sampling plan.

27.Which of these assignments of duties would least likely lead to an embezzlement or theft?
A.Inventory warehouse manager has responsibility for making the physical inventory observation and
reconciling the discrepancies to the perpetual inventory records.
B.The cashier prepares the bank deposit, endorses the checks with the company stamp, takes the cash
and checks to the bank for deposit, and reconciles the bank statement.
C.Accounts receivable clerk opens customer payments so he could make entries in the customers'
accounts receivable subsidiary accounts.
D.Financial vice president receives the checks payable to suppliers and the supporting invoices, signs
the checks, and mails them to the payees.

28.Standard control procedures over customer remittances received through the mail include the policy
that requires the mailroom personnel to
A.Forward the remittances, unopened, directly to the cashier.
B.Open the mail, restrictively endorses the checks, and then prelists each remittance in triplicate copies.
C.Forward the remittances, unopened, directly to the account receivable clerk.
D.Open the mail, restrictively endorses the checks, then, forwards the remittances directly to the
accounts receivable clerk.

29.After making the deposit, the daily cash summaries and the validated deposit slips should be
forwarded by the cashier directly to the:
A.Treasurer.
B.Accounts receivable clerk.
C.General accounting.
D.Internal auditor.

30.The accounting and the cash receipts functions should be handled by which department(s)? A.Both
functions should be under the control of the company Treasurer.
B.Both functions should be under the control of the company Controller.
C.The Controller should have control of accounting functions and the treasurer should have control of
cash receipt functions.
D.The Treasurer should have control of accounting functions and the Controller should have control of
cash receipt functions.

31.When auditing cash, the auditor should mostly be concerned with:

A.Detective risk.
B.Inherent risk.
C.Adjunct risk.
D.Nonsampling risk.

32.Which of the following is most likely to indicate fraud?

A.Several overpayments are made for goods received from a supplier.
B.The year-end cash balance cash balance does not include cash in transit to the company at year-
end.
C.A check received after year end is inadvertently recorded as if received before year-end.
D.A documented loan to an officer of the company.

33.Jolas embezzled P50,000 from the company's account in Bank A. At year-end he concealed the
shortage by drawing a check in Bank B and deposited it in Bank A. He has not recorded the transaction
on the books. This is an example of:
A.Lapping.
B.Kiting.
C.An effective cash management.
D.Related-party transactions.

34.A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft of P10,000.
The other account, Bank B, has a positive balance of P5,000. To conceal the overdraft from the auditor,
the client may decide to
A.Draw a check for at least P10,000 on Bank A for deposit in Bank B. Record the receipt but not the
disbursement and list the receipt as a deposit in transit. Record the disbursement at the beginning of
the following year.
B.Draw a check for P10,000 on Bank B for deposit in Bank A. Record the disbursement but not the
receipt. List the disbursement as an outstanding check, but do not list the receipt as a deposit in transit.
Record the receipt at the beginning of the following period.
C.Draw a check for at least P10,000 on Bank B for deposit in Bank A. Record the receipt but not the
disbursement and list the receipt as a deposit in transit. Record the disbursement at the beginning of
the following year.
D.Draw a check for at least P10,000 on Bank A for deposit in Bank B. Record the disbursement but not
the receipt and list the disbursement as an outstanding check. Record the receipt at the beginning of
the following year.

35.A company has a policy of rotating employees' assigned duties. This policy is most important for
employees who:
A.Are not bonded.
B.Maintain the detailed accounting records.
C.Handle cash receipts.
D.Have access to the general ledger.

36.Alpha company uses its sales invoices for posting to perpetual inventory records. Inadequate
internal control procedures over the invoicing function allow goods to be shipped that are not yet
invoiced. The inadequate controls could cause an
A.Understatement of revenues, receivables, and inventory.
B.Overstatement of revenues and receivables, and an understatement of inventory. C.Understatement
of revenues and receivables, and an overstatement of inventory.
D.Overstatement revenues, receivables, and inventory.

37.Which of the following control procedures may prevent the failure to bill customer for some
shipments?
A.Each shipment should be supported by a pre-numbered sales invoice that is accounted for.
B.Each sales order should be approved by authorized personnel.
C.Sales journal entries should be reconciled to daily sales summaries.
D.Each sales invoice should be supported by a shipping document.

38.The most effective control for ensuring that customers are billed only for goods shipped is to
A.Require that carriers sign properly completed bills of lading.
B.Implement a policy that prevents the mailing of sales invoices to the customers in the absence of a
properly approved shipping order and a bill of lading signed by the carrier.
C.Require that all shipments be approved by an accounting personnel.
D.Prevent goods from leaving the warehouse without being accompanied by a signed bill of lading and
a properly approved shipping order.

39.A company policy should clearly indicate that defective merchandise returned customers is to be
delivered to the
A.Sales clerk
B.Receiving clerk.
C.Inventory control clerk.
D.Accounts receivable clerk.

40.During a review of a small business client's internal control system, the auditor discovered that the
accounts receivable clerk approves credit memos and has access to cash. Which of the following would
be most effective in offsetting this weakness?
A.The owner reviews errors in billing to customers and postings to the subsidiary ledgers.
B.The controller receives the monthly bank statement directly and reconciles the checking accounts.
C.The owner reviews credit memos after they are recorded.
D.The controller reconciles the total of the detailed accounts receivable to the amount shown in the
ledger.

41.The most effective control, to prevent unbilled and unrecorded shipments to finished goods is to
A.Require all outgoing shipments to be accompanied by a prenumbered shipping order and bill of lading
(signed by the carrier). Forward a copy of these documents to accounting, to be placed in an open file
awaiting receipt of the customer invoice copy.
B.Forward a copy of the shipping order and bill of lading to billing.
C.Implement a policy that prevents sales invoices from being mailed to customers in the absence of a
properly approved shipping order and bill of lading signed by the carrier.
D.Forward a copy of the signed bill of lading to the store's manager.

42.Controls over approving credit relate to the:

A.Completeness assertions.
B.Rights and obligation.
C.Valuation or allocation.
D.Occurrence.

43.To determine whether internal control operates effectively to minimize errors of failure to bill a
customer for a shipment, the auditor would select a sample of transactions from the population
represented by the
A.Customer order file.
B.Shipping records file.
C.Subsidiary customer accounts ledger.
D.Sales invoice.

44.To verify that all sales transactions have been recorded, a test of transactions should be completed
on a representative sample drawn from
A.Entries in the sales journal.
B.The billing clerk's file of sales orders.
C.A file of duplicate copies of sales invoices for which all prenumbered forms in the series have been
accounted for.
D.The shipping clerk's file of duplicate copies of shipping documents.

45.To gather audit evidence about the proper credit approval of sales, the auditor would select sample
of documents from the population represented by the
A.Customer order file.
B.Bill of lading file.
C.Subsidiary customers' account ledger.
D.Sales invoice file.

46.The purpose of tests of controls over sipping is to determine whether

A.Billed goods have been shipped.
B.Shipments are billed.
C.Shipping department personnel are competent.
D.Credit is approved before goods are shipped.

47.The purpose of the tests of controls over billing is to determine whether

A.Billed goods have been shipped.
B.Shipments are billed.
C.Shipping department personnel are competent.
D.Credit is approved before goods are shipped.

48.An effective procedure to test for unbilled shipments is to trace from the
A.Sales journal to the shipping documents.
B.Shipping documents to the sales journal.
C.Sales journal to the accounts receivable ledger.
D.Sales journal to the general ledger sales account.

49.To determine whether refunds granted to customers were properly approved, the auditor should
trace accounts receivable entries to:
A.Sales invoices.
B.Remittance advices.
C.Shipping documents.
D.Credit memos.

50.The following are four steps that an auditor undertakes in assessing control risk:
A)Determine what control procedures are used by the entities
B)Identify the system's control objectives
C)Design tests of controls
D)Consider the potential errors or irregularities that could result
In what order would an auditor perform these steps?
A.DBAC
B.BCDA
C.BDAC
D.DCAB

51.In order for the auditors to be able to recognize potential fraud, they must be aware of the basic
characteristics of fraud. Which of the following is a characteristic of fraud?
A.Unintentional deception.
B.Taking unfair or dishonest advantage of uniformed individuals.
C.Lack of training.
D.Negligence on the part of executive management.

52.Which of the following statements bout "window dressing is correct?"

A.Window dressing involves an intentional overstatement of receivables and sales through decreases
in the percentage of completion of long-term construction projects.
B.An audit is not intended t provide assurance of detecting any forms of window dressing.
C.A number of window dressing practices represent proper and appropriate business practices.
D.Window dressing ordinarily involves the intentional overstatement of liability and equity accounts.

ROQUE Revenue and Receipt Cycle

36.Which of the following might be detected by an auditor's review of the entity's sales cutoff? A.Inflated
sales for the year
B.Lapping of the year-end accounts receivable
C.Unrecorded sales discounts
D.Excessive goods returned for credit

37.An auditor most likely would review a client's periodic accounting for the numerical sequence of
shipping documents and sales invoices to support management's financial statements assertion of
A.Existence
B.Rights and obligations
C.Completeness
D.Valuation and allocation

38.If the objective of a test of details of transactions is to detect overstatements of sales, the auditor's
direction of testing should be from the
A.Cash receipts journal to the sales journal
B.Accounting records to the source documents
C.Source documents to the accountingrecords
D.Sales journal to the cash receipts journal

39.Cutoff tests designed to detect credit sales made before the end of the year that have been recorded
in the subsequent year provide assurance about management's assertion of
A.Accuracy
B.Classification
C.Rights and obligations
D.Cutoff
40.An auditor most likely would limit substantive audit tests of sales transactions when control risk is
assessed as low for the occurrence assertion concerning sales transactions and the auditor has already
gathered evidence supporting
A.Beginning and ending inventory balances
B.Cash receipts and accounts receivable
C.Cutoffs of sales and purchases
D.Shipping and receiving activities

41.Tracing bills of lading to sales invoices provides evidence that

A.Invoice sales were shipped.
B.Recorded sales were shipped.
C.Shipments to customers were recorded as sales.
D.Shipments to customers were invoiced.

42.The auditor finds a situation in which one person has the ability to collect receivables, make deposits,
issue credit memos, and record receipts of payments. The auditor suspects the individual may be
stealing cash receipts. Which of the following audit procedures would be most effective in discovering
fraud in this scenario?
A.Perform detailed review of debits to sales discounts, sales returns and allowances, or other debit
accounts, excluding cash deposited to the cash receipts journal.
B.Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in the
cash receipts journal.
C.Send negative confirmations to all outstanding accounts receivable customers
D.Send positive confirmations to a random selection of customers.

43.Which of the following most likely would give the most assurance concerning the valuation and
allocation assertion of accounts receivable?
A.Vouching amounts in the subsidiary ledger to details on shipping documents.
B.Inquiring about receivables pledged under loan agreements.
C.Assessing the allowance for bad debts for reasonableness.
D.Comparing receivable turnover ratios with industry statistics for reasonableness.

44.Which of the following is not a principal objective in auditing accounts receivable?

A.To determine whether receivables are carried at their net realizable value.
B.To determine whether receivables are properly classified, described and disclosed in the financial
statements, including notes, in accordance with the applicable financial reporting framework.
C.To determine whether the entity has real claims in all receivables on the balance sheet.
D.To determine whether the accounts are collected by the balance sheet date.

45.A large university has relatively ineffective internal control. To obtain assurance that all tuition
revenue has been recorded, the auditor should
A.Confirm a sample of tuition payments with the students.
B.Prepare year-end bank reconciliation.
C.Compare business office revenue records with the registrar's office records of students enrolled.
D.Observe tuition payment procedures on a surprise basis.
46.The process of obtaining and evaluating audit evidence through a direct communication from a third
party in response to a request for information about a particular item affecting assertions made by
management in the financial statements is called
A.Reperformance
B.External confirmation
C.Inquiry
D.Recalculation

47.The confirmation of customers' account receivable rarely provides reliable evidence about the
valuation assertion because
A.Customers may not be inclined to report understatement errors in their accounts.
B.Auditors typically select many accounts with low recorded balances to be confirmed.
C.It is not practicable to ask the customer to confirm detailed information relating to its ability to pay the
account.
D.Recipients usually respond only if they disagree with the information on the request.

48.Auditors may use appositive and/or negative forms of confirmation requests. An auditor most likely
will use
A.The negative form for small balances
B.The positive form, when the combined assessed level of inherent and control risk for related
assertions is acceptably low and the negative form when it is unacceptably high.
C.The positive form to confirm all balances regardless of size.
D.A combination of the two forms, with the positive form used for trade balances and the negative form
for other balances.

49.The following statements relate to use of negative confirmation requests. Which is true? A.Negative
confirmation request are effective when detection risk is low.
B.Unreturned negative confirmation requests indicate that alternative procedures are necessary.
C.Unreturned negative confirmation requests rarely provide significant explicit evidence.
D.Negative confirmation requests are effective when understatements of account balances are
suspected.

50.In confirming accounts receivable, an auditor decided to confirm customers' account balances rather
than individual invoices. Which of the following most likely would be included with the client's
confirmation letter?
A.An auditor-prepared letter explaining that a nonresponse may cause an inference that the account
balance is correct.
B.An auditor-prepared letter requesting the customer to supply missing and information directly to the
auditor.
C.A client-prepared letter reminding the customer that a non-response will cause a second request to
be sent.
D.A client-prepared statement of account showing the details of the customer's account balance.

51.Which of the following statements would an auditor most likely add to the negative form of
confirmations of accounts receivable to encourage timely consideration by the recipient?
A."This is not a request for payment; remittances should not be sent to our auditors in the enclosed
envelope."
B."If you do not report any differences within 15 days, itwill be assumed that this statement is correct."
C."The following invoices have been selected for confirmation and represent amounts that are
overdue."
D."Report any differences on the enclosed statement directly to our auditors; no reply is necessary if
thisamount agrees with your records."

52.An auditor confirms a representative number of open accounts as of December 31 and investigates
respondents' exceptions and comments. By this procedure, the auditor is most likely to learn of which
of the following?
A.One of the cashiers has been covering a personal embezzlement by lapping.
B.The credit manager has misappropriated remittances from customers whose accounts have been
written off.
C.One of the sales clerks has not been preparing charge slips for credits sales to family and friends.
D.One of the computer processing control clerks has been removing all sales invoices applicable to his
account from the data file.

53.During the process of confirming receivables as of December 31, 200A, a positive confirmation was
returnedindicating the "balance owed as of December 31 was paid on January 6, 200B." The auditor
will most likely
A.Reconfirm the zero balance as of January 7, 200B.
B.Verify that the amount was received.
C.Determine whether a cash discount was taken by the customer.
D.Determine whether there were any changes in the account between January 1 and January 6, 200B.

54.A company has computerized sales and cash receipts journals. The computer programs for these
journals have been properly debugged. The auditor's examination of the accounting records revealed
that the total of the accounts receivable subsidiary accounts differs materially from the accounts
receivable control account. This discrepancy could indicate
A.Credit memoranda being improperly recorded.
B.Statements being intercepted prior to mailing.
C.Lapping of receivables.
D.Receivables not being properly aged.

55.To reduce the risks associated with accepting tax responses to requests for confirmations of
accounts receivable, an auditor most likely would
A.Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted.
B.Consider the faxes to be nonresponses and evaluate them as unadjusted differences.
C.Verify the sources and contents of the faxes in telephone calls to the senders.
D.Examine the shipping documents that provide evidence for the existence assertion.

56.PSA 505 defines confirmation as "the process of obtaining and evaluating audit evidence through a
representation of information or an existing condition directly from a third party in response to a request
for information about a particular item affecting assertions in the financial statements or related
disclosures." Two assertions for which confirmation of accounts receivable balances provides primary
evidence are
A.Completeness and valuation and allocation
B.Valuation and allocation and rights and obligations
C.Rights and obligations and existence
D.Existence and completeness

57.For accounts receivable, negative confirmation is less effective than positive confirmation because
A.Some recipients may report incorrect balances that require extensive follow-up.
B.A majority of recipients usually lack the willingness to respond objectively.
C.The auditor cannot infer that all non-respondents have verified their account information. D.Negative
confirmations do not produce evidence that is statistically quantifiable.

58.Which of the following procedures would an auditor most likely perform for year-end accounts
receivable confirmations when the auditor did not receive replies to second requests?
A.Inspect the shipping records documenting the merchandise sold to the debtors.
B.Review the cash receipts journal for the month prior to year-end.
C.Intensify the study of internal control concerning the revenue cycle.
D.Increase the assessed level of detection risk for the existence assertion.

Audit of Cash Expenditure Cycle

59. Which of the following is the most effective procedure for determining the collectibility of an accounts
receivable?
A.Confirmation of the account.
B.Review of the subsequent cash collections.
C.Review of authorization of credit sales to the customer and the previous history of collections.
D.Examination of the related sales invoice(s).

60. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger
control account as of December 31. By this procedure, the auditor is most likely to learn of which of the
following?
A.An account balance is past due and should be written off.
B.A December invoice was improperly computed.
C.A December check from a customer was posted in error to the account of another customer with a
similar name.
D.An opening balance in a subsidiary ledger account was improperly carried forward from the previous
accounting period.

61.Once a CPA has determined that accounts receivable have increased because of slow collections
in a tight money environment, the CPA is likely to
A.Review the entity's credit and collection policy.
B.Expand tests of collectibility.
C.Review the going concern ramifications.
D.Increase the balance in the allowance for bad debts account.

62. All of the following are examples of substantive procedures to verify the valuation of new accounts
receivable,exceptthe
A.Comparison of the allowance for bad debts with past records.
B.Recomputation of the allowance for bad debts.
C.Inspection of the aging schedule and credit records of past due accounts.
D.Inspection of accounts for current versus noncurrent status in the statement of financial position.
63. The most likely reason for the auditor to be concerned about the valuation of cash is that
A.The proof of cash cannot be reconciled.
B.The client uses a checking account.
C.Both currency and negotiable securities are on hand.
D.The client has foreign currency accounts.

64. When counting cash are on hand, the auditor must exercise control over all cash and other
negotiable assets to prevent
A.Theft
B.Deposits in transit
C.Substitution
D.Irregular endorsement

65. The best evidence regarding year-end bank balances is documented in the
A.Bank reconciliations
B.Interbank transfer schedules
C.Cash in bank lead schedule
D.Cutoff bank statement

66. Which of the following sets of information does an auditor usually confirm on one form? A.Accounts
receivable and accrued interest receivable.
B.Cash in bank and collateral for loans.
C.Accounts payable and purchase commitments.
D.Inventory on consignment and contingent liabilities.

67. An auditor ordinarily sends a standard confirmation request to all banks with which the client has
done business during the year under audit, regardless of the year-end balance. A purpose of this
procedure is to
A.Detect kiting activities that may otherwise not be discovered.
B.Provide the data necessary to prepare a proof of cash.
C.Request that a cutoff bank statement and related checks be sent to the auditor.
D.Seek information about other deposit and loan amounts that come to the attention of the institution
in the process of completing the confirmation.

68. Which of the following items is not requested on a standard bank account balance confirmation
form?
A.The principal amount paid on a direct liability.
B.Maturity date of a direct liability.
C.Description of collateral for a direct liability.
D.The interest rate of a direct liability.

69. Which of the following is not considered an objective of the audit of cash?
A.Cash is stated at its realizable value.
B.Compensating cash balances are reported as other current assets.
C.Cash is properly classified, described, and disclosed in the financial statements, including notes, in
accordance with the applicable financial reporting framework.
D.The client has ownership rights in the reported cash.

70. The purpose of a proof of cash is to

A.Validate that the client's bank did not make an error during the period being examined.
B.Confirm that the client has properly separated the custody function from the recording function with
respect to cash.
C.Prove that the client's year-end balance of cash is fairly stated.
D.Determine whether any unauthorized disbursements or unrecorded deposits were made for the given
time period.

71. An internal auditor would be concerned about the possibility of fraud if

A.Only one person has access to the petty cash fund.
B.Cash receipts, net of the amounts used to pay petty cash-type expenditures, are deposited in the
bank daily.
C.The monthly bank statement reconciliation is performed by the same employee who maintains the
perpetual inventory records.
D.The accounts receivable subsidiary ledger and accounts payable subsidiary ledger are maintained
by the same person.

72. Purchase cutoff procedures test the completeness assertion. An entity should include goods in its
inventory if it
A.Has paid for the goods.
B.Holds legal title to the goods.
C.Has physical possession of the goods.
D.Has sold the goods.

73. In auditing accounts payable, an auditor's procedure most likely will focus primarily on
management's assertions of
A.Existence
B.Valuation and allocation
C.Completeness
D.Presentation and disclosure

74. Which of the following is the primary audit test to determine if accounts payable are valued properly?
A.Vouching accounts payable to supporting documentation.
B.An analytical procedure.
C.Verification that accounts payable are reported as a current liability in the balance sheet.
D.Examination of cash disbursements subsequent to year-end.

75. Which of the following procedures is least likely to be performed before the balance sheet date?
A.Search for unrecorded liabilities.
B.Confirmation of accounts receivable.
C.Attendance at the physical inventory count.
D.Testing internal control over cash.

76. 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.Receiving reports
B.Vendors' invoices
C.Cancelled checks
D.Merchandise received
77.Which of the following is a substantive procedure that an auditor would most likely perform to verify
the existence and valuation of recorded accounts payable?
A.Confirming accounts payable balances with known suppliers who have zero balances.
B.Investigating the open purchase order file to ascertain that prenumbered purchase orders are used
and accounted for.
C.Receiving the client's mail, unopened, for s reasonable period of time after year-end to search for
unrecorded vendor's invoices.
D.Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving
reports.

78. When using confirmations to provide evidence about the completeness assertion for accounts
payable, the appropriate population most likely is
A.Amounts recorded in the accounts payable subsidiary ledger.
B.Vendors with whom the entity has previously done business.
C.Invoices filed in the entity's open invoice file.
D.Payees of checks drawn in the month subsequent to the balance sheet date.

79. Unrecorded liabilities are most likely to be found during the review of which of the following
documents?
A.Bills of lading
B.Unpaid bills
C.Unmatched sales invoices
D.Shipping records

80. Which of the following audit procedures is least likely to detect unrecorded liability?
A.Reading the minutes of meetings of the board of directors
B.Analysis and recomputation of interest expense
C.Analysis and recomputation of depreciation expense
D.Mailing of bank confirmation forms

81. When the title to merchandise in transit has passed to the audit client, the auditor engaged in the
performance of a purchase cutoff will encounter the greatest difficulty in gaining assurance with respect
to the
A.Quality
B.Quantity
C.Price
D.Terms

82. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
A.Reconciling vendors' statements to the file of receiving reports to identify terms received just prior to
the balance sheet date.
B.Examining unusual relationships between monthly accounts payable balances and recorded cash
payments.
C.Investigating payables recorded just prior to and just subsequent to the balance sheet date to
determine whether they are supported by receiving reports.
D.Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether
the related payables apply to prior period.
83. In a payables application, checks are authorized and paid based on matching purchase orders,
receiving reports, and vendor invoices. Partial payments are common. An appropriate audit procedure
for verifying that a purchase order has not been paid twice is to sort the
A.Check register file by purchase order, compute total amounts paid by purchase order, compare total
amounts paid with purchase order amounts, and investigate any discrepancies between the total
amounts paid and purchase order amounts.
B.Receiving report file by vendor invoice amounts and investigate any discrepancies between the total
amounts received and vendor invoice amounts.
C.Vendor invoice file by purchase order, compute total amounts invoiced by purchase order, compare
total amounts invoiced with purchase order amounts, and investigate any discrepancies between the
total amounts invoiced and purchase order amounts.
D.Receiving report file by purchase order, compute total amounts received by purchase order, compare
total amounts received with purchase order amounts, and investigate any discrepancies between the
total amounts invoiced and purchase order amounts. Accounts Payable Inventories

84.Which of the following procedures relating to the examination of accounts payable could the auditor
delegate entirely to the client's employees?
A.Mail confirmations for selected account balances.
B.Prepare a schedule of accounts payable.
C.Test footings in the accounts payable ledger.
D.Reconcile unpaid invoices to vendor's statements.

85.In an audit of purchasing department, which of the following usually is considered a risk factor?
A.Purchase specifications are developed by the department requesting the material.
B.Purchases are not rotated among suppliers included on an approved vendor list.
C.Purchases are made from parties related to buyers or other company officials.
D.Purchases are made against blanket or open purchase orders for certain types of items.

86.The following statements compare confirmation of accounts payable with vendors and confirmation
of accounts receivable with customers. Which is false?
A.As compared with the confirmation of accounts receivable, the confirmation of accounts payable will
tend to emphasize accounts with zero balances at the balance sheet date.
B.Statistical sampling techniques are more appropriate in the confirmation of accounts receivable than
in the confirmation of accounts payable.
C.It is less likely that the confirmation request sent to the vendor will show the amount owed than that
the request sent to the customer will show the amount due.
D.Confirmation of accounts receivable with customers is a more widely accepted auditing procedure
than is confirmation of accounts payable with vendors.

87.Which of the following procedures would an auditor least likely perform before the balance sheet
date?
A.Confirmation of accounts payable
B.Identification of related parties
C.Assessment of control risk
D.Attendance at the physical inventory count
88.Which of the following statements concerning the auditor's attendance at the physical inventory
count isincorrect?
A.A financial statement audit should always include attendance at the physical inventory count.
B.If the auditor is unable to attend the physical inventory count on the date planned due to unforeseen
circumstances, he/she should take or observe some physical counts on an alternative date and, when
necessary, perform audit procedures on intervening transactions.
C.Where attendance is impracticable, due to factors such as the nature and location of the inventory,
the auditor should consider whether alternative procedures provide sufficient appropriate audit
evidence of existence and condition to conclude that reference to a scope limitation need not be made.
D.Inventories that are under the custody and control of third parties (for example, inventories located
in public warehouses) may be verified by obtaining direct confirmation from the custodians, provided
that, depending on the materiality of the amount involved, additional procedures should be applied as
deemed necessary.
89.PSA 501 states that in planning attendance at the physical inventory count, the auditor considers
the risks of material misstatement related to inventory as well as the nature of the internal control related
to inventory. Which of the following would the auditor also consider?
I.Whether adequate procedures are expected to be established and proper instructions issued for the
physical inventory count.
II.The timing of the count.
III.The location at which inventories are held.
IV.Whether an expert's assistance is to be sought.

A.I and IV only

B.II and III only
C.II, III, and IV only
D.I, II, III, and IV

90.According to PSA 501, when inventories are under the custody and control of a third party, the
auditor would ordinarily obtain direct confirmation from the third party as to the quantities and condition
of inventories held on behalf of the entity. Which of the following would the auditor also consider?
I.The integrity and independence of the third party.
II.Observing, or arranging for another auditor to observe, the physical inventory count.
III.Obtaining another auditor's report on the adequacy of the third party's internal control for ensuring
that inventories are correctly counted and adequately safeguarded.
IV.Inspecting documentation regarding inventories held by third parties (for example, warehouse
receipts) or obtaining confirmation from other parties when such inventories have been pledged as
collateral.
A.I, II, and IV only
B.I, III, and IV only
C.II, III, and IV only
D.I, II, III, and IV

91.In an audit of inventories, an auditor is least likely to verify that

A.The client has used proper inventory pricing.
B.Damaged goods and obsolete items have been properly accounted for.
C.The financial statement presentation of inventories is appropriate.
D.All inventory owned by the client is on hand at the time of count.
92.An auditor selected items for test counts while observing a client's physical inventory. The auditor
then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence
concerning management's assertion of
A.Existence
B.Rights and obligations
C.Completeness
D.Valuation and allocation

93.An auditor is most likely to inspect loan agreements under which an entity's inventories are pledged
to support management's financial statement assertion of
A.Presentation and disclosure
B.Existence
C.Completeness
D.Valuation and allocation

94.If the perpetual inventory records show lower quantities of inventory than the physical count, an
explanation of the difference might be unrecorded
A.Purchases
B.Sales
C.Sales discounts
D.Purchase discounts

95.A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of
control risk is high, an auditor will probably
A.Increase the extent of tests of controls relevant to the inventory cycle.
B.Request the client to schedule the physical inventory count at the end of the year.
C.Apply gross profit tests to ascertain the reasonableness of the physical count.
D.Insist that the client perform physical counts of inventory items several times during the year.

96.While obtaining an understanding of the client's internal control system in the production cycle,
management stated that the sale of scrap was well controlled. Which of the following is the best audit
procedure to verify this assertion?
A.Interviewing persons responsible for collecting and storing the scrap.
B.Comparing current revenue from scrap sales with that of prior periods.
C.Comparing the quantities of scrap expected from the production process with the quantities sold.
D.Comparing the results of a physical inventory of scrap on hand with perpetual inventory sold.

97.To obtain evidence as to the reasonableness and completeness of inventory balances, auditors
often perform analytical procedures. Which of the following quantitative relationship isnot applicable to
inventory balances?
A.Number of days' sales ininventory
B.Debt-to-equity ratio
C.The gross profit percentage
D.Inventory turnover ratios
98.An auditor concluded that no excessive costs for an idle plant were charged to inventory. This
conclusion most likely related to the auditor's objective to obtain evidence about the financial statement
assertions regarding inventory, including presentation and disclosure and
A.Valuation and allocation
B.Completeness
C.Rights and obligations
D.Existence

99.An auditor's attendance at the physical inventory at the client's main plant at year-end provides
direct evidence to support which of the following objectives?
A.Accuracy of the priced-out inventory.
B.Determination of goods in the hands of consignees.
C.Evaluation of lower of cost or net realizable value test.
D.Identification of obsolete or damaged merchandise to evaluate allowance (reserve) for obsolescence.

100.The audit of year-end physical inventories should include steps to verify that the client's purchases
and sales cutoffs were adequate. The audit steps should be designed to detect whether merchandise
included in the physical count at year-end was not recorded as a
A.Sale in the current period
B.Purchase in the current period
C.Sale in the subsequent period
D.Purchase return in the subsequent period

101.PSA 501 states that when inventory is material to the financial statements, the auditor should obtain
sufficient appropriate audit evidence regarding its evidence and condition by attendance at physical
inventory counting unless impracticable. Which of the following statements concerning this audit
process isincorrect?
A.Regardless of the inventory system operated by the client, an annual physical count must be made
of each item in the inventory, and test counts must be made by the auditor.
B.Inventories located in public warehouses may be verified by direct confirmation in writing from the
custodians, provided that, depending on the materiality of these inventories, additional procedures are
applied as deemed necessary.
C.When the well-kept perpetual inventory records are checked by the client periodically by comparisons
with physical counts, the auditor's observation procedures usually can be performed either during or
after the end of the period under audit.
D.The independent auditor, when asked to audit financial statements covering the current period and
one or more periods for which he/she had not observed or made some physical counts, may be able
to become satisfied as to such prior inventories through alternative procedures.

102.Which of the following audit procedures probably provides the most reliable evidence concerning
the entity's assertion of rights and obligations related to inventories?
A.Inspect the open purchase order file for significant commitments that should be considered for
disclosure.
B.Trace test counts noted during the entity's physical count to the entity's summarization of quantities.
C.Inspect agreements to determine whether any inventory is pledged as collateral or subject to any
liens.
D.Select the last few shipping advices used before the physical count and determine whether the
shipments were recorded as sales.
103.After counting for a sequence of inventory tags, an auditor traces a sample of tags to the physical
inventory listing to obtain evidence that all items
A.Represented by inventory tags are included in the listing.
B.Represented by inventory tags are bona fide.
C.Included in the listing have been counted.
D.Included in the listing are represented by inventory tags.

104.When outside firms of nonaccountants specializing in taking of physical inventories are used to
count, list, price, and subsequently compute the total peso amount of inventory on hand at the date of
the physical count, the auditor will ordinarily
A.Consider the reduced audit effort with respect to the physical count of inventory as a scope limitation.
B.Make or observe some physical counts of the inventory, recompute certain inventory calculations,
and test certain inventory transactions.
C.Consider the report of the outside inventory-taking firm to be an acceptable alternative procedure to
the observation of physical inventories.
D.Not reduce the extent of work on the physical count of inventory.

105.Periodic or cycle counts of selected inventory items are made at various times during the year
rather than a single inventory count at year-end. Which of the following is necessary if the auditor plans
to observe inventories at interim dates?
A.Inventory balances are rarely at low levels.
B.Complete recounts by independent teams are performed.
C.Perpetual inventory records are maintained.
D.Unit cost records are integrated with production accounting records.

106.Purchase cutoff procedures should be designed to test whether all inventory

A.Purchased and received before year-end was paid for.
B.Purchased and received before year-end was recorded.
C.Owned by the company is in the possession of the company at year-end.
D.Ordered before year-end was received.

107.Which of the following is the best audit test to evaluate the accuracy of the inventory records for
materials inventory in a production in operation?
A.Reconcile quantities on hand per physical counts of selected items with perpetual inventory records
and verify pricing.
B.Trace selected inventory receipts to perpetual inventory records.
C.Vouch selected postings in the perpetual inventory records to source documents.
D.Perform turnover tests for materials inventory.

108.An auditor is most likely to learn of slow-moving inventory through

A.Inquiry of sales personnel
B.Inquiry of warehouse personnel
C.Review of perpetual inventory records
D.Physical observation of inventory

109.The physical count of inventory of a retailer was higher than shown by the perpetual records. Which
of the following could explain the difference?
A.Inventory items had been counted but the tags placed on the items had not been taken off the items
and added to the inventory accumulation sheets.
B.An item purchased "FOB shipping point" had not arrived yet at the date of the inventory count and
had not been reflected in the perpetual records.
C.Credit memos for several items returned by customers had not been recorded.
D.No journal entry had been made on the retailer's books for several items returned to its suppliers.

Revenue and Receipt Cycle

1. After the auditor has prepared a flowchart of internal control for sales, and cash receipts
transactions and evaluated the design of the system, the auditor would perform tests of
controls on all control procedures
a. Documented in the flowchart.
b. Considered to be deficiencies that might allow errors to enter the accounting system.
c. Considered to be strengths that the auditor plans to rely on in assessing control risk.
d. That would aid in preventing irregularities.

2. Which of the following is not a universal rule for achieving control over cash?
a. Separate the cash-handling and record-keeping functions.
b. Deposit each day’s cash receipts by the end of the day.
c. Have bank reconciliation’s performed by employees who do not handle cash.
d. Decentralize the receiving of cash as much as possible.

3. The least crucial element of control over cash is

a. Separation of cash record keeping from custody of cash.
b. Preparation of the monthly bank reconciliation.
c. Separation of cash receipts from cash disbursements.
d. Batch processing of checks.

4. The use of fidelity bonds protects a company from embezzlement losses and also
a. Minimizes the possibility of employing persons with dubious records in positions of trust.
b. Protects employees who make unintentional errors form possible monetary damages
resulting from such errors.
c. Allows the company to substitute the fidelity bonds for various parts of internal control.
d. Reduces the company’s need to obtain expensive business interruption insurance.

5. An auditor is reviewing internal control for accounts receivable:

I. The billing function should not be assigned to the person who is responsible for maintaining
accounts receivable records.
II. Responsibility for approval of the write-off of accounts receivable that are uncollectible
should not be assigned to the cashier.
a. Only I is true c. Both I and II are true
b. Only II is true d. Neither I nor II is true

6. Which of the following is an effective internal control over accounts receivable?

a. Only persons who handle cash receipts should be responsible for the preparation of
documents that reduce accounts receivable balances.
b. Responsibility for approval of the write-off of uncollectible accounts receivable should be
assigned to the cashier.
c. Balances in the subsidiary accounts receivable ledger should be reconciled to the general
ledger control account once a year, preferably at year-end.
d. The billing function should be assigned to persons other than those responsible for
maintaining accounts receivable subsidiary records.

7. To achieve control when there is no billing department, the billing function should be performed
by the
a. Accounting department c. Shipping department
b. Sales department d. Credit and collection department

8. The person who opens the mail commonly prepares a remittance advice when a customer fails
to return one with a payment. Consequently, mail should be opened by the
a. Credit manager. c. Sales manager.
b. Receptionist. d. Accounts receivable clerk.

9. Which of the following would the auditor consider to be an incompatible operation if the cashier
receives remittances from the mail room?
a. The cashier makes the daily deposit at a local bank.
b. The cashier prepares the daily deposit.
c. The cashier endorses the checks.
d. The cashier posts the receipts to the accounts receivable subsidiary ledger.

10. Which of the following would best protect a company that wishes to prevent lapping?
a. Segregating duties so that accounting has no access to an incoming mail
b. Segregating duties so that no employee has access both to checks from customers and to
currency from daily cash receipts
c. Having customers send payments directly to the company’s bank
d. Requesting that customers checks be made payable to the company and be addressed to
the treasurer

11. Defective merchandise returned by customers should be presented to

a. Inventory control personnel. c. Purchasing personnel
b. Sales personnel. d. Receiving personnel

12. In considering internal control within the revenue/receipt cycle, what is the purpose of a
transaction walk through?
a. To assure that employees are performing assigned functions accurately.
b. To confirm the auditor’s understanding of the internal control structure.
c. To select documents for detailed tests of controls.
d. To verify the results of the auditor’s sampling plan.

13. To determine whether internal control operates effectively to minimize errors of failure to bill a
customer for a shipment, the auditor would select a sample of transactions from the population
represented by the
a. Shipping records file c. Sales invoice
b. Customer order file d. Subsidiary customer accounts ledger

14. The purpose of tests of controls over shipping is to determine whether

a. Billed goods have been shipped.
b. Shipments are billed.
c. Shipping department personnel are competent.
d. Credit is approved before goods are shipped.

15. The purpose of tests of controls over billing is to determine whether

a. Billed goods have been shipped.
b. Shipments are billed.
c. Billing department personnel are competent.
d. Credit is approved before goods are billed.

16. Which of the following control procedures could prevent or detect errors or frauds arising from
shipments made to unauthorized parties?
a. Document policies and procedures for scheduling shipments.
b. Establish procedures for reviewing and approving prices and sales terms before sale.
c. Prenumber bills of lading and assure that related billings are made on a periodic basis.
d. Prepare and periodically update lists of authorized customers.

Expenditure and Disbursement Cycle

1. The accounts payable department receives a purchase order form to accomplish all of the
following except
a. Comparing invoice price to purchase order price.
b. Ensuring that the purchase had been properly authorized.
c. Comparing quantity ordered to quantity purchased.
d. Ensuring that the goods had been received by the party requesting the goods.

2. Which of the following is a primary function of the purchasing department?

a. Ensuring the acquisition of goods of a specified quality.
b. Authorizing the acquisition of goods.
c. Verifying the propriety of goods of a specified quality.
d. Reducing expenditures for goods acquired.

3. Matching the suppliers’ invoice, the purchase order, and the receiving report normally should
be the responsibility of the
a. Receiving department c. Accounting function
b. Purchasing department d. Treasury function

4. The accounts payable department generally should

a. Cancel supporting documentation after a cash payment is mailed
b. Approve the price and quantity of each purchase requisition
c. Assure that the quantity ordered is omitted from the receiving department’s copy of the
purchase order
d. Agree the vendor’s invoice with the receiving report and purchase order
5. Internal control is improved when the quantity of merchandise ordered is omitted from the copy
of the purchase order sent to the
a. Department that initiated the requisition c. Purchasing agent
b. Receiving department d. Accounts payable department

6. When goods are received, the receiving clerk should match the goods with the
a. Purchase order and requisition.
b. Vendor’s invoice and the receiving report.
c. Vendor’s shipping document and the purchase order.
d. Receiving report and the vendor’s shipping documents.

7. The accounts payable department should compare the information on each vendor’s invoice
with the
a. Receiving report and the purchase order.
b. Receiving report and the vendor.
c. Vendor’s packing slip and the purchase order.
d. Vendor’s packing slip and the voucher.

8. The mailing of disbursement checks and remittance advices should be controlled by the
employee who
a. Signed the checks last
b. Approved the vouchers for payment
c. Matched the receiving reports, purchase orders, and vendor invoices
d. Verified the mathematical accuracy of the vouchers and remittance advices

9. What is the reason for ensuring that every copy of a vendor’s invoice has a receiving report?
a. To ascertain that merchandise billed by the vendor was received by the company.
b. To ascertain that merchandise received by the company was billed by the vendor.
c. To ascertain that the invoice was correctly prepared.
d. To ascertain that a check was prepared for every invoice.

10. How can an auditor test to determine whether Receiving Department procedures are applied
properly?
a. Test a sample of receiving documents.
b. Observe receiving procedures on a surprise basis.
c. Review procedures manuals.
d. Interview Receiving personnel.

11. Which of the following control procedures could prevent or detect payment of goods not
received?
a. Counting goods when received.
b. Matching the purchase order, receiving report, and vendor’s invoice.
c. Comparing goods received with goods requisitioned.
d. Verifying vouchers for accuracy and approval.

12. Which of the following would prevent a paid disbursement from being paid a second time?
a. Individuals responsible for signing checks should prepare vouchers.
b. Disbursements should be approved by at least two responsible officials.
c. The disbursement date should be within a few days of the date the voucher is presented for
payment.
d. The official signing the check should cancel the supporting documents.

13. Assume an auditor’s interim consideration of internal control in the expenditure/disbursement

cycle reveals that control risk can be assessed below the maximum and detection risk above
the minimum for some assertions. Which of the following is true about substantive tests
applied to accounts payable?
a. The auditor is more apt to confirm payable balances.
b. The auditor is less apt to perform substantive tests at the balance sheet date.
c. The auditor is more apt to increase the extent of substantive tests.
d. The auditor is more apt to ignore the risk of incorrect acceptance when sampling accounts
payable.

14. 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 support.
b. Prenumbering of disbursement vouchers.
c. Use of a limit or reasonableness test.
d. Prenumbering of receiving reports.

15. The authority to accept incoming goods in receiving should be based on a(n)
a. Vendor’s invoice c. Bill of lading
b. Materials requisitions d. Approved purchase order