In: Accounting
[Auditing]
3. Which of the following controls would be
most effective in detecting a misstatement of the
completeness
assertion with respect to accounts payable?
a. A list of outstanding checks written to vendors is generated
during the preparation of the monthly
bank reconciliation.
b. Purchase orders must be accompanied by properly approved
purchase requisitions before they are
submitted to vendors.
c. The AIS purchases and disbursements application will not prepare
a check to a supplier without a
valid ID number matched to the master vendor file.
d. A weekly report is prepared listing all receiving reports for
which a vendor invoice has not yet been
received and is then forwarded to the controller for review and
follow-up.
4. An auditor has been tasked with designing a
substantive procedure that will provide evidence for the
completeness assertion with respect to long-term debt (LTD). The
auditor has therefore included this
step in the audit program: “Select a sample of the loans making up
the general ledger LTD balance and
determine that each is supported by a properly executed loan
agreement that has been approved by
the board of directors as documented in the corporate minutes.”
This scenario illustrates . . .
a. a properly designed test of controls.
b. a properly designed test of details.
c. the risk of incorrect acceptance.
d. nonsampling risk.
Question 3:
The correct answer is "D" : A weekly report is prepared listing all receiving reports for which a vendor invoice has not yet been received and is then forwarded to the controller for review and follow-up.
Reason: To check the completeness of accounts payable, an auditor usually performs procedures to verify whether all the goods which have been received have been recorded or not and their corresponding liability has been recorded in accounts payable or not. And the document needed to perform this test is the receiving report.
Question 4:
The correct answer is "A" : a properly designed test of controls.
Reason: Under the designed procedure we are basically testing the approval of the long term debt, i.e., whether the debt incurred by the company has been appropriately approved by the board of directors or not and whether it is supported by a loan agreement or not. We are not performing any substantive testing over the numbers and hence this is a properly designed test of controls.