Which of the following describes a permanent difference?

Which of the following describes a permanent difference? 

A. A difference that will be corrected in an amended tax return.

B. A difference arising from an uncertain tax position.

C. A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes.

D. A timing difference between the recognition of revenue or expense under GAAP and tax purposes.


Answer: A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes.

Which of the following describes a temporary difference?

Which of the following describes a temporary difference? 

A. A difference that will be corrected in an amended tax return.

B. A difference arising from an uncertain tax position.

C. A fundamental difference in what constitutes revenue or expense for GAAP and tax purposes.

D. A timing difference between the recognition of revenue or expense under GAAP and tax purposes.


Answer: A timing difference between the recognition of revenue or expense under GAAP and tax purposes

If payables turnover has increased significantly since the prior year, this is an indication that which of the following assertions for accounts payable might be violated?

If payables turnover has increased significantly since the prior year, this is an indication that which of the following assertions for accounts payable might be violated? 

A. Existence or occurrence.

B. Completeness.

C. Rights and obligations.

D. Valuation and allocation.


Answer: Completeness

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases?

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases? 

A. Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher?

B. Are purchase requisitions prenumbered and independently matched with vendor invoices?

C. Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions?

D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?


Answer: Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

Which of the following test(s) of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?

Which of the following test(s) of details of transactions can be used as a dual-purpose test in conjunction with tests of controls? 

A. Test a sample of purchase requisitions for proper authorization.

B. Obtain selected vendors' statements and reconcile to vendor accounts.

C. Obtain listing of accounts payable and compare total to general ledger.

D. Review results of confirmations of selected accounts payable.


Answer: Test a sample of purchase requisitions for proper authorization

Assertions about account balances at the period end include

Assertions about account balances at the period end include

A. Existence, completeness, and accuracy.

B. Existence, completeness, and classification.

C. Existence, rights and obligations, and completeness.

D. Existence, rights and obligations, and classification.


Answer: Existence, rights and obligations, and completeness

Assertions about classes of transactions and events for the period under audit include

Assertions about classes of transactions and events for the period under audit include 

A. Existence, completeness, and accuracy.

B. Existence, completeness, and classification.

C. Occurrence, completeness, and cutoff.

D. Occurrence, completeness, and valuation and allocation.


Answer: Occurrence, completeness, and cutoff

The mailing of disbursement checks and remittance advices should be controlled by the employee who

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 vendors' invoices.

D. Verified the mathematical accuracy of the vouchers and remittance advices.


Answer: Signed the checks last

Which of the following is an internal control that would prevent a paid disbursement voucher from being presented for payment a second time?

Which of the following is an internal control that would prevent a paid disbursement voucher from being presented for payment a second time? 

A. Vouchers should be prepared by individuals who are responsible for signing disbursement checks.

B. Disbursement vouchers should be approved by at least two responsible management officials.

C. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment.

D. The official signing the check should compare the check with the voucher and should "cancel" the voucher documents by marking them "paid."


Answer: The official signing the check should compare the check with the voucher and should "cancel" the voucher documents by marking them "paid."

Which of the following control activities is not usually performed in the accounts payable department?

Which of the following control activities is not usually performed in the accounts payable department? 

A. Determining the mathematical accuracy of the vendor's invoice.

B. Having an authorized person approve the voucher.

C. Controlling the mailing of the check and remittance advice.

D. Matching the receiving report with the purchase order.


Answer: Controlling the mailing of the check and remittance advice

Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over

Budd, the purchasing agent for Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufacturers to the retail store on a C.O.D. basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over 

A. Purchase requisitions.

B. Cash receipts.

C. Perpetual inventory records.

D. Purchase orders.



Answer: Purchase orders

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of

In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of 

A. Existence.

B. Rights and obligations.

C. Completeness.

D. Valuation and allocation.


Answer: Completeness

If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to

If completeness is a concern for accounts payable, auditors will send accounts payable confirmations to 

A. Primarily vendors with large accounts payable balances.

B. Primarily vendors with small or zero accounts payable balances.

C. All vendors.

D. A random sample of all vendors.


Answer: Primarily vendors with small or zero accounts payable balances

Accounts payable confirmations are used to test

Accounts payable confirmations are used to test 

A. Both the existence and completeness audit assertions.

B. Only the existence audit assertion.

C. Only the completeness audit assertion.

D. Either existence or completeness, depending upon the response rate.


Answer: Both the existence and completeness audit assertions

An examination of the balance in the accounts payable account is ordinarily not designed to

An examination of the balance in the accounts payable account is ordinarily not designed to 

A. Determine that the amounts represent obligations of the company.

B. Verify that accounts payable were properly authorized.

C. Ascertain the reasonableness of recorded liabilities.

D. Determine that all existing liabilities at the balance sheet date have been recorded.


Answer: Verify that accounts payable were properly authorized

Which of the following procedures would an auditor least likely perform before the balance sheet date?

Which of the following procedures would an auditor least likely perform before the balance sheet date? 

A. Assessment of inherent risk.

B. Observation of merchandise inventory.

C. Assessment of control risk.

D. Identification of related parties.


Answer: Observation of merchandise inventory

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? 

A. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.

B. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance.

C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.

D. Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions.


Answer: Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable?

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence of recorded accounts payable? 

A. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.

B. Receiving the entity's mail, unopened, for a reasonable period of time after the year-end to search for unrecorded vendor's invoices.

C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.

D. Confirming accounts payable balances with known suppliers who have zero balances.


Answer: Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports

When searching for unrecorded liabilities at year-end, the population identified for sampling would be

When searching for unrecorded liabilities at year-end, the population identified for sampling would be 

A. Cash receipts from related parties recorded before year-end.

B. Creditors whose accounts appear on a subsidiary trial balance of accounts payable.

C. Cash disbursements recorded in the period subsequent to year-end.

D. Invoices dated a few days before and after year-end.


Answer: Cash disbursements recorded in the period subsequent to year-end.

Purchase cutoff procedures should be designed to test whether or not all inventory

Purchase cutoff procedures should be designed to test whether or not all inventory 

A. Purchased and received before the year-end was recorded before year-end.

B. On the year-end balance sheet was carried at lower of cost or market.

C. On the year-end balance sheet was paid for by the company.

D. Owned by the company is in the possession of the company.


Answer: Purchased and received before the year-end was recorded before year-end