Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 14, Problem 18RQ
Whitehall Company records its liabilities in an accounts payable subsidiary ledger. The auditors have decided to select some of the accounts for confirmation by direct communication with vendors. The largest volume of purchases during the year has been made from Ranchero Company, but at the
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Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? *A. Scan the cash disbursements entries recorded just before year end for indications of unusual transactions.B. Compare a sample of purchase orders issued just after year end with the year-end accounts payable trial balance.C. Obtain a copy of the receiving report until year end and its related sales invoice and trace them to the purchases journal.D. Compare the entries recorded in the purchases journal and the cash disbursements journal just before year end.
The following are typical questions that might appear on an internal control questionnaire for accounts payable.
1. Are monthly statements from vendors reconciled with the accounts payable listing?
2. Are vendors’ invoices matched with receiving reports before they are approved for payment?
Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of the risk of material misstatement.
The following are typical questions that might appear on an internal control questionnaire for accounts payable.
1. Are monthly statements from vendors reconciled with the accounts payable listing?
2. Are vendors’ invoices matched with receiving reports before they are approved for payment?
Describe the manner in which each of the above procedures might be tested.
Chapter 14 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 14 - If a corporation overstates its earnings, are its...Ch. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - List the major responsibilities of an accounts...Ch. 14 - Prob. 10RQ
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Prob. 16RQCh. 14 - Prob. 17RQCh. 14 - Whitehall Company records its liabilities in an...Ch. 14 - Prob. 19RQCh. 14 - Prob. 20RQCh. 14 - Prob. 21RQCh. 14 - Prob. 22RQCh. 14 - What is the purpose of the auditors review of cash...Ch. 14 - Prob. 24RQCh. 14 - Prob. 25RQCh. 14 - Prob. 26RQCh. 14 - Prob. 27QRACh. 14 - Prob. 28QRACh. 14 - Prob. 29QRACh. 14 - Prob. 30QRACh. 14 - Prob. 31QRACh. 14 - Prob. 32QRACh. 14 - Which of the following procedures is least likely...Ch. 14 - Prob. 33BOQCh. 14 - Which of the following is the best audit procedure...Ch. 14 - Prob. 33DOQCh. 14 - Prob. 33EOQCh. 14 - Prob. 33FOQCh. 14 - Prob. 33GOQCh. 14 - Prob. 33HOQCh. 14 - Ordinarily, the most significant assertion...Ch. 14 - Prob. 33JOQCh. 14 - Prob. 33KOQCh. 14 - Prob. 33LOQCh. 14 - Prob. 34OQCh. 14 - Prob. 35OQCh. 14 - Prob. 36OQCh. 14 - Prob. 37OQCh. 14 - Prob. 38PCh. 14 - Prob. 39PCh. 14 - Prob. 40PCh. 14 - Prob. 41PCh. 14 - Prob. 42PCh. 14 - Prob. 43ITC
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- Which of the following procedures will an auditor most likely perform for year-endaccounts receivable confirmations when the auditor did not receive replies to secondrequests?(1) Review the cash receipts journal for the month prior to year end.(2) Intensify the study of internal control concerning the revenue cycle.(3) Inspect the shipping records documenting the merchandise sold to the debtors.(4) Increase the assessed level of detection risk for the existence assertion.arrow_forwardWhich of the following would provide an auditor with the most reliable evidence reguarding the existence of accounts receivable? A. A copy of the invoice sent to the customer. B. Acopy of the customer's sales order held by the client. C. An accounts receivable confirmation received by the auditor from the client's customer. D. An aging schedule showing the composition of the year-end-accounts receivable balance.arrow_forwardWhich of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? O Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. O Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions. O Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices.arrow_forward
- During the course of the year 2 audit of Smithsone Company, the auditor discovered the following situations that may or may not require an adjusting journal entry. Each audit finding is independent of any of the other findings. Select the account or accounts that would comprise the adjusting journal entry, if required, to correct the audit finding. Accounts may be used once, more than once, or not at all. Audit finding The bank’s confirmation reply regarding the company’s line of credit indicated that the December, year 2, interest was unpaid at year-end. Accruals for monthly interest expense have been made for 11 months in year 2 by the company. Employee overtime pay for hours worked before year-end, but paid in the following year, were not recorded in year 2. In the last week of year 2, the company recorded revenue for services rendered to some clients in year 3. During year 2, a former client sued the company for inappropriate work. Legal counsel has advised that it is…arrow_forwardL. King, CPA, is auditing the financial statements of Cycle Company, a client that has receivables from customers arising from the sale of goods in the normal course of business. King is aware that the confirmation of accounts receivable is a generally accepted auditing procedure. Required: a. Under what circumstances could King justify omitting the confirmation of Cycle’s accounts receivable? b. In designing confirmation requests, what factors are likely to affect King’s assessment of the reliability of confirmations that King sends? c. What alternative procedures could King consider performing when replies to positive confirmation requests are not received?arrow_forwardAn auditor is likely to perform each of the below procedures to obtain evidence regarding the potential understatement of accounts payable at year-end (i.e., the Completeness assertion) except… Question options: Inspect purchase orders and receiving reports for accounts payable recorded at year-end. Inspect the open invoice file for invoices to be paid after year-end. All options describe procedures that can be used to identify a potential understatement of accounts payable. Analyze cash disbursements made during the first few weeks of the subsequent year and inspect supporting documentation for each disbursement.arrow_forward
- An auditor decided to render sales cut-off as part of auditing an audit client's accounts receivable. Entries in the Sales Journal from December 16, 2016 to the subsequent period January 15, 2017 were vouched to the supporting documents. Which of the following is correct regarding the December entries? a. December sales journal entries vouched back to the sales invoice provide evidence about the occurrence/existence of Sales/Accounts Receivables.b. December sales journal entries vouched back to the delivery receipts provide evidence about the occurrence/existence of Sales/Accounts Receivables.c. December sales journal entries vouched back to the sales invoice provide evidence about the completeness of Sales/Accounts Receivables.d. December sales journal entries vouched back to the delivery receipts provide evidence about the valuation of Sales/Accounts Receivables.e. None of the above.arrow_forwardAn auditor decided to render sales cut-off as part of auditing an audit client's accounts receivable. Entries in the Sales Journal from December 16, 2016 to the subsequent period January 15, 2017 were vouched to the supporting documents. Which of the following is correct regarding the January entries? *a. January sales journal entries vouched back to the sales invoice shall help uncover possible overstatement of Sales/Accounts receivable.b. January sales journal entries vouched back to the delivery receipts shall help uncover possible understatement of Sales/Accounts receivable.c. December sales journal entries vouched back to the delivery receipts shall help uncover possible overstatement of Sales/Accounts Receivables.d. December sales journal entries vouched back to the sales invoice shall help uncover possible understatement of Sales/Accounts receivable.e. None of the above.arrow_forwardFor each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. During the course of the audit of Sail-Away Company, the auditor noted that the current ratio has dropped to 1.75. the company’s loan covenant requires the maintenance of a current ratio of 2.0, or the company’s det is all immediately due. The auditor and the company have contacted the bank, which is not willing to waive the loan covenant because the company has been experiencing operating losses for the past few years and has an inadequate capital structure. The auditor has substantial doubt that the company can find adequate financing elsewhere and may encounter difficulties staying in operation. Management, however, is confident that it can overcome the problem. The company does not deem it necessary to include any additional disclosure because management members are confident that an alternative source of funds will be found by pledging their personal assets. The…arrow_forward
- The following are typical questions that might appear on an internal control questionnaire for accounts payable. 1. Are monthly statements from vendors reconciled with the accounts payable listing? 2. Are vendors’ invoices matched with receiving reports before they are approved for payment? Describe the purpose of each of the above internal control activities.arrow_forwardConfirmation of Trade Accounts Receivable. L. King, CPA, is auditing the financial statements of Cycle Company, a client that has receivables from customers arising from the sale of goods in the normal course of business. King is aware that the confirmation of accounts receivable is a generally accepted auditing procedure.Required:a. Under what circumstances could King justify omitting the confirmation of Cycle’s accounts receivable?b. In designing confirmation requests, what factors are likely to affect King’s assessment of the reliability of confirmations that King sends?c. What alternative procedures could King consider performing when replies to positive confirmation requests are not received?arrow_forwardWhich of the following is the best audit procedure for determining the existence of unrecorded liabilities?a. Examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable.b. Examine a sample of cash disbursements in the period subsequent to year-end.c. Examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded.d. Examine unusual relationships between monthly accounts payable and recorded purchases.arrow_forward
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