Propex Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Propex will probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if There are usually invoices in an unmatched invoice file. Vendors’ requests for
confirmation of receivables often go unanswered for several months until paid invoices can be reviewed. Partial payments to vendors are continuously made in the ordinary course of business. It is difficult to reconcile vendors’ monthly statements. Partial payments to vendors are continuously made in the ordinary course of business. This answer is correct because
when partial payments are continuously made to vendors, an accounts payable subsidiary ledger would be very beneficial to the corporation. The subsidiary ledger would be used to keep track of the amounts still outstanding after partial payments. Otherwise, the partial payments would have to be written on the voucher register in order to keep track of the amount still due. Jackson, the
purchasing agent of Judd Hardware Wholesalers, has a relative who owns a retail hardware store. Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis thereby enabling his relative to buy at Judd’s wholesale prices. Jackson was probably able to accomplish this because of Judd’s poor internal control over Purchase orders. Purchase orders. This answer is correct because proper control over purchases would require that ordered goods only be shipped to authorized locations; proper control would also determine that all ordered goods had been received by the firm. If purchase orders are issued by Judd and the purchases are never received, there is an internal control condition over the purchase orders. All purchase orders should be accounted for
(prenumbered) and followed up to assure receipt of orders that are issued. A client’s materials-purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor’s primary objective in reviewing this cycle is to Evaluate the reliability of information generated as a result of the purchasing process. Investigate the physical handling and recording of unusual acquisitions of materials. Consider the need to be on hand for the annual physical count if this system is not functioning properly. Ascertain that materials said to be ordered, received, and paid for are on hand. Evaluate the reliability of information generated as a result of the purchasing process. This
answer is correct because the auditor’s primary objective in reviewing the materials purchasing cycle is to evaluate the reliability of the information generated as a result of the purchasing process. This answer also encompasses all the other answer choices. Which of the following is a standard control for cash disbursements? Checks should be signed by the controller and at least one
other employee of the company. Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations. Checks and supporting documents should be marked "Paid" immediately after the check is returned with the bank statement. Checks should be sent directly to the payee by the employee who prepares documents that authorize check preparation. Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations. This answer is correct because checks should be sequentially numbered, and the person preparing bank reconciliations should account for all checks. This provides control over unauthorized and unrecorded checks. For effective internal control purposes, which of the following individuals should be responsible for mailing signed checks? Receptionist. Treasurer. This answer is correct because the treasurer has custody of the checks after s/he signs them and may mail them most efficiently. To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is Stamped "paid" by the check signer. Returned to the vouchers payable department. Supported by the vendor’s invoice and purchase order. Prenumbered and accounted for. Stamped "paid" by the check signer. This answer is correct because if the voucher (and all attached support) is stamped "paid" by the check signer, that support may not be submitted for payment a second time. An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all Purchase orders. Canceled checks. The requirement is to identify the population from which items should be selected to determine whether checks are being issued for unauthorized expenditures. Answer (b) is correct because a sample of canceled checks should be selected and compared with the approved vouchers, a prenumbered purchase order and prenumbered receiving reports. A canceled check that does not have such support may have been unauthorized. Answers (a), (c), and (d) are all incorrect because selecting items from purchase orders, receiving reports, or approved vouchers will not reveal circumstances in which a check was issued without that supporting document. For example, when selecting a sample from purchase orders, one would not discover a situation in which a check had been issued without a purchase order. A retailing entity uses the Internet to execute and record its purchase transactions. The entity’s auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would Compare a sample of paid vendors’ invoices to the receiving records at year-end. Plan for a large measure of tolerable misstatement in substantive tests. Perform tests several times during the year, rather than only at year-end. Increase the sample of transactions to be selected for cutoff tests. Perform tests several times during the year, rather than only at year-end. This answer is correct because in such a circumstance auditors will perform tests throughout the year so as to be able to test transactions when such documentation is still available. To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is Supported by a vendor's invoice. Stamped "paid" by the check signer. Prenumbered and accounted for. Approved for authorized purchases. Stamped "paid" by the check signer. The requirement is to identify the audit procedure relating to paid vouchers that will provide assurance that each voucher is submitted and paid only once. Answer (b) is correct because when the check signer stamps vouchers "paid" it is unlikely to be paid a second time since that individual will notice the stamp on the voucher the second time it is submitted for payment. An auditor compares information on canceled checks with information contained in the cash disbursement journal. The objective of this test is to determine that Recorded cash disbursement transactions are properly authorized. Proper cash purchase discounts have been recorded. Cash disbursements are for goods and services actually received. No discrepancies exist between the data on the checks and the data in the journal. No discrepancies exist between the data on the checks and the data in the journal. This answer is correct because discrepancies between data on the checks and data in the journal would be found by a comparison of each. Operating control over check signing normally should be the responsibility of the Secretary. Treasurer. This answer is correct because the treasurer has custodial responsibilities for cash and should be in a position to disburse cash upon proper authorization. An internal control narrative indicates that an approved voucher is
required to support every check request for payment of merchandise. Select and examine vouchers and ascertain that the related canceled checks are dated no later than the vouchers. Select and examine vouchers and ascertain that the related canceled checks are dated no earlier than the vouchers. Select and examine canceled checks and ascertain that the related vouchers are dated no earlier than the checks. Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks. Select and examine canceled checks and ascertain that the related vouchers are dated no later than the checks. This answer is incorrect because the vouchers should be dated prior to the checks. With well-designed internal control, the same employee may be permitted to Mail signed checks, and also cancel supporting documents. Prepare receiving reports, and also approve purchase orders. Approve vouchers for payment, and also have access to unused purchase orders. Mail signed checks, and also prepare bank reconciliations. Mail signed checks, and also cancel supporting documents. This answer is correct because the individual who mails the signed checks is normally the individual who signs those checks and cancels the supporting documents. That individual should cancel the supporting documents to control the possibility of disbursing funds for goods not received or for paying a debt twice. Which of the following is an effective control that encourages receiving department personnel to count and inspect all merchandise received? Quantities ordered are excluded from the receiving department copy of the purchase order. Vouchers are prepared by accounts payable department personnel only after they match item counts on the receiving report with the purchase order. Receiving department personnel are expected to match and reconcile the receiving report with the purchase order. Internal auditors periodically examine, on a surprise basis, the receiving department copies of receiving reports. Quantities ordered are excluded from the receiving department copy of the purchase order. This answer is correct because if the quantities ordered are not known to the receiving department personnel, they will have to count and inspect the incoming merchandise to indicate the quantity received. They will not simply compare the goods received with the quantity on the purchase order for "reasonableness." In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system is to Cancel the supporting documents. Enter the check amount in the check register. Approve the voucher for payment. Post the voucher amount to the expense ledger. Approve the voucher for payment. This answer is correct because at this point the appropriate documents have been assembled and verified to allow a decision on whether the voucher should be approved for payment. An effective control that protects against the preparation of improper or inaccurate disbursements would be to require that all checks be Signed by an officer after necessary supporting evidence has been examined. Reviewed by the treasurer before mailing. Sequentially numbered and accounted for by internal auditors. Perforated or otherwise effectively canceled when they are returned with the bank statement. Signed by an officer after necessary supporting evidence has been examined. This answer is correct because requiring an officer to sign a check only after necessary supporting evidence is provided will be an effective internal control measure. This procedure would allow checks to only be written for disbursements which have accurate, supporting documentation. A client erroneously recorded a large purchase twice. Which of the following controls would be most likely to detect this error in a timely and efficient manner? Footing the purchases journal. Reconciling vendors’ monthly statements with subsidiary payable ledger accounts. Tracing totals from the purchases journal to the ledger accounts. Sending written quarterly confirmations to all vendors. Reconciling vendors’ monthly statements with subsidiary payable ledger accounts. This answer is correct because reconciling the vendors’ monthly statements with the subsidiary ledger for payables should disclose a difference in the month following the error. With properly designed internal control, the same employee most likely would match vendors' invoices with receiving reports and also Post the detailed accounts payable records. Recompute the calculations on vendors' invoices. Reconcile the accounts payable ledger. Cancel vendors' invoices after payment. Recompute the calculations on vendors' invoices. The requirement is to identify the function that is consistent with matching vendors' invoices with receiving reports. Answer (b) is correct because while matching invoices and receiving reports, the employee might effectively recompute the calculations on the vendors' invoices to determine that the amounts are proper. Answers (a) and (c) are incorrect. The individual who matches the invoices and receiving reports will often also approve them for payment. Therefore, this individual should not also post accounts payable records or reconcile the accounts payable ledger. Answer (d) is incorrect because the individual who controls the signing of the checks should cancel the invoices after payment. With well-designed internal control, employees in the same department most likely would approve purchase orders, and also Reconcile the open invoice file. Inspect goods upon receipt. Authorize requisitions of goods. Negotiate terms with vendors. Negotiate terms with vendors. The requirement is to identify a function that is compatible with the approval of purchase orders. Answer (d) is correct because the purchases department will normally approve purchase orders (generated from user departments or stores) and negotiate terms of purchase with vendors. Answer (a) is incorrect because while the purchases department may reconcile the open invoice file, this is primarily a recordkeeping function that will often be performed by the accounting department. Answer (b) is incorrect because most frequently the receiving department will inspect goods upon receipt. Answer (c) is incorrect because user groups or stores will authorize requisitions of goods. Keep in mind the principle of segregation of functions. Recordkeeping, authorization, and custodial functions should all be segregated. An auditor wishes to perform tests of controls on a client’s cash disbursements procedures. If the control leaves no audit trail of documentary evidence, the auditor most likely will test the control by Confirmation and observation. Observation and inquiry. Analytical procedures and confirmation. Inquiry and analytical procedures. Observation and inquiry. This answer is correct because the professional standards suggest that when no audit trail exists an auditor should use the observation and inquiry techniques since no documentation is involved. Which of the following is the most effective control to detect vouchers that were prepared for the payment of goods that were not received? Count goods upon receipt in storeroom. Match purchase order, receiving report, and vendor’s invoice for each voucher in accounts payable department. Compare goods received with goods requisitioned in receiving department. Verify vouchers for accuracy and approval in internal audit department. Match purchase order, receiving report, and vendor’s invoice for each voucher in accounts payable department. This answer is correct because a proper internal control will assure that a receiving report is present to indicate that the goods have been received. The accounts payable department receives the purchase order form to accomplish all of the following except Compare invoice price to purchase order price. Ensure the purchase had been properly authorized. Ensure the goods had been received by the party requesting the goods. Compare quantity ordered to quantity purchased. Ensure the goods had been received by the party requesting the goods. This answer is correct because, although various parties may requisition goods, the goods are normally received and placed in stores. Therefore, accounts payable will be unable to determine whether the requisitioner actually received the goods. Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice? The check signer accounts for the numerical sequence of receiving reports used in support of each payment. An individual independent of cash operations prepares a bank reconciliation. The check signer reviews and cancels the voucher packets. Two check signers are required for all checks over a specified amount. The check signer reviews and cancels the voucher packets. This is correct because the canceling of the voucher packets will make it impossible for a second payment to be processed since no uncanceled voucher packet will be present in support of the disbursement the second time. To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a separation of which of the following functions? Cash disbursements and invoice verification. Invoice verification and merchandise ordering. Physical handling of merchandise received and preparation of receiving reports. Check signing and cancellation of payment documentation. Cash disbursements and invoice verification. This answer is correct because the requirements concern internal control in the accounts payable area and separation of cash disbursements and invoice verification is an effective control. The accounts payable function normally includes invoice verification. The important separation should be between authorization of payment and actual cash disbursements. Thus the accounts payable area (including invoice verification) should be separated from cash custodianship and disbursement. 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 Requested by and approved by authorized individuals who have no incompatible duties. Received, counted, and checked to quantities and amounts on purchase orders and invoices. Properly recorded as assets and systematically amortized over the estimated useful life of the supplies. Used in the course of business and solely for business purposes during the year under audit. Received, counted, and checked to quantities and amounts on purchase orders and invoices. This answer is correct because receiving, counting, and checking the quantities on purchase orders provides control over supplies which have already been purchased and paid for. The authority to accept incoming goods in receiving should be based on a(n) Vendor’s invoice. Approved purchase order. This answer is correct because the approved purchase order provides evidence that the goods received were ordered. Which of the following is a control that would prevent a paid disbursement voucher from being presented for payment a second time? Vouchers should be prepared by individuals who are responsible for signing disbursement checks Disbursement vouchers should be approved by at least two responsible management officials. The date on a disbursement voucher should be within a few days of the date the voucher is presented for payment. The official signing the check should compare the check with the voucher and should deface the voucher documents. The official signing the check should compare the check with the voucher and should deface the voucher documents. This answer is incorrect because a second individual might reapprove a previously issued disbursement voucher if vouchers are not properly marked at the time of the initial payment. In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also Reviews the monthly bank reconciliation. Returns the checks to accounts payable. Is denied access to the supporting documents. Is responsible for mailing the checks. Is responsible for mailing the checks. The requirement is to determine the appropriate responsibility for the person who signs checks. Answer (d) is correct because the individual who signs checks should be responsible for mailing them so as to avoid a variety of fraud in which the checks are improperly converted into cash by company employees. Answer (a) is incorrect because the individual who reconciles the bank accounts should have no other responsibilities with respect to cash. Answer (b) is incorrect because accounts payable does not need the checks and, if they receive them, those checks may be converted into cash which is then stolen. Answer (c) is incorrect because the person who signs the checks should determine that proper supporting documents exist and should cancel that documentation after the payment is made. A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Employee Responsibility Clerk 3 mails the checks and remittances after they have been signed. This is correct because Clerk 3's mailing of the signed checks provides that individual both with recordkeeping responsibility over the payments and custody of the signed checks—authorization, custody, and recordkeeping should be segregated. For effective internal control purposes, the vouchers payable department generally should Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee. Exclude the quantity ordered on the receiving department copy of the purchase order. Establish the agreement of the vendor’s invoice with the receiving report and purchase order. Establish the agreement of the vendor’s invoice with the receiving report and purchase order. This answer is incorrect because the purchasing department is involved with the approval of purchase requisitions, not the vouchers payable department. Which of the following controls is not usually performed in the vouchers payable department? Matching the vendor's invoice with the related receiving report. Approving vouchers for payment by having an authorized employee sign the vouchers. Indicating the asset and expense accounts to be debited. Accounting for unused prenumbered purchase orders and receiving reports. Accounting for unused prenumbered purchase orders and receiving reports. The requirement is to determine the control that is not usually performed in the vouchers payable department. Answer (d) is correct because the vouchers payable department will not in general have access to unused prenumbered purchase orders and receiving reports. Answer (a) is incorrect because the vouchers payable department will match the vendor's invoice with the related receiving report to determine that the item for which the company has been billed has been received. Answer (b) is incorrect because the vouchers payable department will approve vouchers for payment when all documentation is proper and present. Answer (c) is incorrect because the vouchers payable department will code the voucher with accounts to be debited. An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all Cash disbursements. Cash disbursements. The requirement is to determine the most likely population from which an auditor would sample when vendors' invoices and related vouchers relating to purchases made by employees have been destroyed. Answer (a) is correct because the disbursement will be recorded and the auditor may thus sample from that population. Answers (b) and (d) are incorrect because the related vouchers and vendors' invoices are destroyed. Answer (c) is incorrect because there is no recording of the receipt of the merchandise. Mailing disbursement checks and remittance advices should be controlled by the employee who Matches the receiving reports, purchase orders, and vendors' invoices. Signs the checks last. Prepares the daily voucher summary. Agrees the check register to the daily check summary. Signs the checks last. The check signer should also be responsible for mailing disbursement checks and remittance advices as these are all custodial functions. Which of the following situations could most likely lead to an embezzlement scheme? The accounts receivable bookkeeper receives a list of payments prepared by the cashier and personally makes entries in the customers' accounts receivable subsidiary ledger. Each vendor invoice is matched with the related purchase order and receiving report by the vouchers payable bookkeeper who personally approves the voucher for payment. Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement. Vouchers and supporting documentation are examined and then canceled by the treasurer who personally mails the checks to vendors. Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement. Allowing the bookkeeper to have access to the accounting records and to the signature plates, which effectively enables the bookkeeper to initiate unauthorized transactions, while also having responsibility for preparing the monthly bank reconciliations is an improper segregation of duties. When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the Unpaid voucher. Debit memo. A debit memo advises accounting that the vendor invoice should not be paid in full due to returned goods. When the shipping department returns nonconforming goods to a vendor, purchasing should send accounting a debit memo. Mailing disbursement checks and remittance advices should be controlled by the employee who: Approves the vouchers for payment. Matches the receiving reports, purchase orders, and vendors' invoices. Maintains possession of the mechanical check-signing device. Signs the checks last. Signs the checks last. Adequate segregation of duties requires that authorization, custodial, and recordkeeping functions be separated. An employee who mails disbursement checks and remittance advices has custodial responsibilities. That same employee should not approve vouchers for payment (authorization); match the receiving reports, purchase orders, and vendors' invoices (authorization); or maintain possession of the check-signing device (conflicting custodial). The checks should be mailed by the employee who signs the checks last to prevent tampering with the signed checks. Which of the following is a standard control over cash disbursements?Which of the following is a standard control over cash disbursements? Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.
Which of the following control is not usually performed in the vouchers payable department?Which of the following control activities is not usually performed with regard to vouchers payable in the accounting department? Controlling the mailing of the check and remittance advice.
Which of the following would prevent a paid disbursement from being paid a second time?8-27. Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time? d. The official who signs the check should compare the check with the voucher and should stamp “PAID” on the voucher documents.
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