SOLVED

36) Listed below are some management assertions made for the acquisition and payment cycle. For each one give an example of how the auditor by using the documents normally found in the process can apply an auditing procedure to test the assertion. Completeness Timing Accuracy 37) When auditing the acquisitions and cash disbursements cycle, it is usually more efficient for the auditor to reduce the extent of tests of controls and rely primarily on substantive tests of transactions and on tests of details of balances, provided the auditor has determined control risk low. A) True B) False 38) Failure to record the acquisition of goods directly affects the balance in Accounts payable and may result in an understatement of ending inventory. A) True B) False 39) If tests of controls and substantive tests of transactions related to perpetual inventory records reveal controls over perpetuals are effective, the auditor is justified in reducing the extent of tests of details of inventory. A) True B) False 40) Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, attributes sampling is commonly used when testing the acquisitions and cash disbursements cycle. A) True B) False 41) A substantive test of transactions commonly used to test the completeness objective for acquisitions is “Trace from a file of receiving reports to the acquisitions journal.” A) True B) False 42) The audit procedure “Test clerical accuracy by footing the journals and tracing postings to general ledger and to accounts payable and inventory master files” is used to test the posting and summarization objective for acquisitions. A) True B) False 43) Auditors are normally more concerned about violations of the completeness objective for acquisitions than about violations of the occurrence objective for acquisitions. A) True B) False 44) The use of statistical sampling is less common for the audit of accounts payable than for accounts receivable because it is more difficult to define the population and determine the population size in accounts payable. A) True B) False 45) The internal control “Vouchers are prenumbered and accounted for” relates most closely to the occurrence objective for acquisitions. A) True B) False 46) The audit procedure “Examine canceled check for authorized signature, proper endorsement, and cancellation by the bank” is used to test the occurrence objective for cash disbursements. A) True B) False