auditing ch 14

Accrued Liabilities Accounts Payable Short-Term Notes

Sources of Accrued Liabilities

primary concern

ways they can understate or omit liabilities

4 capital lease criteria

Dr. PPE 500k Cr. LT lease 500k -- what ratios does this impact

operating lease

controls over acquisition cycle

most common error

most common frauds

suspense accounts

controls against misstatements... key

A/P substantive TEsts... two common ones for testing

other evidence available for A/P

confirmation generally required for AP?

to search for unrecorded AP .. examine which transactions that were recorded following year end

to search for unrecorded AP be alert during..

how to search for unrecorded AP

some fees that may go unrecorded...

potential sources of unrecorded AP

mistatements and omissions are jusged based on

materiality on entries

Amounts withheld from employees pay

Income taxes withheld from employees' pay but not

Trace amounts withheld to

Test computations of taxes

Determine that taxes have been deposited in accordance with

required to collect sales tax imposed by

sales tax payable

unclaimed wages are subject to

unclaimed wages are concerned with

analyze unclaimed wages to determine

what laws to consider with unclaimed wages..

customer deposits are

customer deposit procedures

list of different accrued liabilities

time examination is most effective when performed

some can be done at interim

Which of the following procedures is least likely to be completed before the balance sheet date? Confirmation of receivables. Search for unrecorded liabilities. Observation of inventory. Review of internal accounting control over cash disbursements.

An audit of the balance in the accounts payable account is ordinarily not designed to: Detect accounts payable that are substantially past due. Verify that accounts payable were properly authorized. Ascertain the reasonableness of recorded liabilities. Determine that all existing liabilities at the balance sheet date have been recorded.

Which of the following is the best audit procedure for determining the existence of unrecorded liabilities? Examine confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable. Examine unusual relationships between monthly accounts payable balances and recorded purchases. Examine a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded. Examine selected cash disbursements in the period subsequent to year-end.

Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because: This is a duplication of cutoff tests. Accounts payable balances at the balance sheet date may not be paid before the audit is completed. Correspondence with the audit client's attorney will reveal all legal action by vendors for nonpayment. There is likely to be other reliable external evidence available to support the balances.

A client erroneously recorded a large purchase twice. Which of the following internal control measures 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 confirmation to all vendors.

For effective internal control, the accounts payable department should compare the information on each vendor's invoice with the: Receiving report and the purchase order. Receiving report and the voucher. Vendor's packing slip and the purchase order. Vendor's packing slip and the voucher.

Ordinarily, the most significant assertion relating to accounts payable is: Completeness. Existence. Presentation. Valuation.

The least likely approach in auditing management's estimate relating to an accrued liability is to: Independently develop an estimate of the amount to compare to management's estimate. Review and test management's process of developing the estimate. Review subsequent events or transactions bearing on the estimate. Send confirmations relating to the estimate.

To determine that each voucher is submitted and paid only once, when a payment is approved, supporting documents should be canceled by the: Authorized members of the audit committee. Accounting department. Individual who signs the checks. Chief executive officer.

In performing a test of controls, the auditors vouch a sample of entries in the purchases journal to the supporting documents. Which assertion would this test of controls most likely test? Completeness. Existence. Valuation. Rights.

Which of the following is not a responsibility of the receiving department? A) Preparing a receiving report. B) Counting the number of goods received. C) Preparing a purchase invoice. D) Checking the goods received for quality.

Which of the following best describes a voucher? A) A document prepared by Purchasing that indicates the amount to be purchased. B) A document prepared by Receiving that indicates the quantity received and approves payment. C) A document prepared by Accounts Payable authorizing a cash disbursement. D) A document received by Purchasing from a supplier, indicating quantity of goods purchased and amount due

Which of the following procedures is least likely to alert the auditors to unrecorded accounts payable? A) Confirmation of accrued liabilities B) Reconcile recorded liabilities with monthly statements from creditors C) Examine disbursement transactions recorded following year-end D) Analytical procedures involving year-end accounts payable

Which of the following best explains why accounts payable confirmation procedures are not always used? A) Inclusion of representations on accounts payable in the client representation letter eliminates the need in most situations. B) Accounts payable generally are immaterial and may be audited through using analytical procedures. C) Creditors will press for payment when they receive the confirmation. D) Confirmations are better at identifying overstatements than understatements, and overstatements are not typically the major concern with accounts payable.

In examining liabilities of a company, what is the auditors' primary concern? A) Completeness B) Presentation C) Rights D) Valuation

For which of the following transactions would an auditor most likely propose an adjustment to the financial statements? A) Inventory is included on the balance sheet at year-end, but the check for payment has not been paid until January 12. B) An order for office supplies that has not been recorded because the goods have not yet been shipped to the company. C) Purchase of $5,000 of office furniture that was ordered on December 22 with a $1,000 deposit being made with an entry debiting "deposit on furniture" for $1,000 and a credit to cash for $1,000. The office furniture was received on January 5. D) Raw materials are included on the balance sheet at year-end, but the payable and subsequent cash disbursements are not recorded until after year-end.

Which of the following audit procedures is LEAST likely to detect an unrecorded liability? A) Analysis and recomputation of interest expense B) Analysis and recompilation of depreciation expense C) Confirmation of accounts payable D) Reading the minutes of meetings of the board of directors

Which of the following is MOST likely to be included in the auditors' search for unrecorded accounts payable? A) Examine invoices received and recorded prior to year-end. B) Examine unmatched sales orders issued prior to year-end. C) Examine vouchers payable entered into the voucher register subsequent to the balance sheet date. D) Examine shipping reports for items shipped to customers recorded subsequent to the balance sheet date.

The auditors' verification of rapidly changing payable accounts is ordinarily most effective when performed: A) Before the balance sheet date. B) At the balance sheet date in conjunction with inventory cutoff tests. C) After the balance sheet date. D) Simultaneously with the audit of accrued liabilities.

Understatement of which of the following is most likely to overstate net income? A) Accounts payable B) Accounts receivable C) Property, plant and equipment D) Cash

Accrued liabilities generally differ from accounts payable in that accrued liabilities: A) Accumulate over time. B) Are usually confirmed at year-end. C) Can be found by a review of unpaid invoices. D) Are never included in cost of goods sold

Which of the following best describes the auditors' approach to the audit of accrued liabilities? A) Confirmation B) Observation C) Plan a low assessed level of control risk D) Test computations