AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 871:

  Which of the following procedures most likely would not be an internal control procedure designed to reduce the risk of errors in the billing process?

  A. Comparing control totals for shipping documents with corresponding totals for sales invoices.

  B. Using computer programmed controls on the pricing and mathematical accuracy of sales invoices.

  C. Matching shipping documents with approved sales orders before invoice preparation.

  D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. Reconciling the control totals for sales invoices with the accounts receivable

  subsidiary ledger would probably not reduce the risk of errors in the billing process, since any errors in

  billing would likely be included in both the sales and accounts receivable balances.

  Choice "a" is incorrect. Comparing control totals for shipping documents with corresponding totals for sales

  invoices is a procedure designed to determine that all shipments have been billed.

  Choice "b" is incorrect. Using computer-programmed controls on sales invoices would reduce the risk of

  errors in the billing process.

  Choice "c" is incorrect. Matching shipping documents with approved sales orders before invoice

  preparation provides assurance that the quantity and terms of the invoice are correct.

• Question 872:

  If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the:

  A. Cash receipts journal to the sales journal.

  B. Sales journal to the cash receipts journal.

  C. Source documents to the accounting records.

  D. Accounting records to the source documents.

  Correct Answer: D

  Explanation: Choice "d" is correct. If the objective of a test of details is to detect overstatements of sales (existence assertion), the auditor should trace transactions from the accounting records (i.e., sales journal) to the source documents (e.g., customer order, sales order, shipping documents, etc.). Choices "a" and "c" are incorrect. Tracing from the supporting documents to the accounting records gives assurance as to the completeness assertion (all sales are properly included). Choice "b" is incorrect. Tracing from the sales journal to the cash receipts journal only shows whether cash has been received for the sale. Failure to find a related cash receipt may indicate simply that the sale was made on account.

• Question 873:

  An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the:

  A. Prelist of individual checks.

  B. Monthly bank reconciliation.

  C. Daily deposit slip.

  D. Remittance advices.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. An auditor would consider a cashier's job description to contain compatible duties if

  the cashier receives remittances from the mailroom and also prepares the daily deposit slip. (That is his or

  her job).

  Choice "a" is incorrect. The prelist of individual checks is prepared by a clerk in the mailroom upon opening

  the mail.

  Choice "b" is incorrect. The monthly bank reconciliation is prepared by an internal auditor or someone else

  that is independent of the cash receipts and cash disbursements functions.

  Choice "d" is incorrect. The remittance advice is prepared by the customer and is mailed along with the

  check (remittance).

• Question 874:

  Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

  A. Accounts receivable.

  B. Credit.

  C. Accounts payable.

  D. Treasurer.

  Correct Answer: D

  Explanation: Choice "d" is correct. Proper authorization of write-offs of uncollectible accounts are approved by the treasurer, who is not involved in the record-keeping function or the initiation of the write-off. Choice "a" is incorrect. Proper segregation of duties requires that the authorization of the write-off be performed by individuals not involved with the accounts receivable department that records the original transactions. Choice "b" is incorrect. The credit department should grant credit and approve credit limits before the sale is made. If the credit department also approved the write-offs of accounts, there would be a lack of appropriate segregation of duties. Choice "c" is incorrect. Even though the accounts payable department is independent of the accounts receivable department, they are not particularly knowledgeable regarding the customers and therefore would not be the best candidates for authorizing the write-offs of accounts receivable.

• Question 875:

  Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

  A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

  B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.

  C. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.

  D. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

  Correct Answer: A

  Explanation: Choice "a" is correct. When performing a search for unrecorded payables, an auditor most likely would examine cash disbursements recorded after the balance sheet date to determine whether the payables related to the prior period have been included in the accounts payable trial balance. Choice "b" is incorrect. Investigating payables already recorded does not provide any evidence concerning unrecorded payables. Choice "c" is incorrect. While a high level of cash payments compared with a low level of payable balances may be indicative of unrecorded payables, comparing these amounts would not be the most effective method for identifying unrecorded payables. Choice "d" is incorrect. Comparing vendor statements to receiving reports is an audit step not involving the accounts payable balances; this step, therefore, provides no information about accounts payable.

• Question 876:

  Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?

  A. Reconcile receiving reports with related cash payments made just prior to year-end.

  B. Contrast the ratio of accounts payable to purchases with the prior year's ratio.

  C. Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders.

  D. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.

  Correct Answer: D

  Explanation: Choice "d" is correct. When performing a search for unrecorded payables, an auditor most likely would compare cash payments occurring after the balance sheet date with the accounts payable trial balance to determine that disbursements that pertain to the prior year's business (year under audit) have been properly accrued. This procedure is commonly known as an "out-of-period-search." Choice "a" is incorrect. If the cash payment is made just prior to year-end, then the related liability would have been paid/relieved as of the year-end balance sheet date. Choice "b" is incorrect. An analytical review procedure that contrasts the ratio of accounts payable to purchases with the prior year's ratio would not provide the best evidence, since payable balances are not predictable and may vary at management's discretion. Choice "c" is incorrect. Vouching a sample of creditor balances already recorded does not provide any evidence concerning unrecorded payables.

• Question 877:

  To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all:

  A. Payment vouchers.

  B. Receiving reports.

  C. Purchase requisitions.

  D. Vendor's invoices.

  Correct Answer: B

  Explanation: Choice "b" is correct. To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. This test consists of tracing from receiving reports for inventory received before year-end to the accounts payable trial balance to determine whether the purchase has been properly recorded. Choice "a" is incorrect. In testing for completeness of payables, the auditor tries to determine whether there are payables that have not been recorded. If the auditor selects from payment vouchers, he or she may be unlikely to select an unrecorded payable, since unrecorded payables that have not yet been paid would not have corresponding payment vouchers. Choice "c" is incorrect. Purchase requisitions do not indicate when the inventory was received, and therefore they are not useful for testing the completeness of accounts payable. Choice "d" is incorrect. Vendor's invoices do not generally indicate when the inventory was received, and therefore they are not useful for testing the completeness of accounts payable.

• Question 878:

  The primary purpose of sending a standard confirmation request to financial institutions with which the client has done business during the year is to:

  A. Detect kiting activities that may otherwise not be discovered.

  B. Corroborate information regarding deposit and loan balances.

  C. Provide the data necessary to prepare a proof of cash.

  D. Request information about contingent liabilities and secured transactions.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. The primary purpose of sending a standard confirmation request to financial

  institutions is to corroborate information regarding deposit and loan balances.

  Choice "a" is incorrect. The bank cut-off statement, not the standard bank confirmation form, is used to

  detect kiting activities that may otherwise not be discovered.

  Choice "c" is incorrect. The standard confirmation does not provide all of the information necessary to

  prepare a proof of cash (i.e., bank reconciliation) since it only confirms information at the end of a period,

  and not activity (e.g., deposits, checks, etc.) occurring during the period.

  Choice "d" is incorrect. The standard confirmation request seeks information on contingent liabilities and

  security agreements, but this is not the primary purpose of sending the confirmation.

• Question 879:

  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:

  A. Purchase orders.

  B. Canceled checks.

  C. Receiving reports.

  D. Approved vouchers.

  Correct Answer: B

  Explanation: Choice "b" is correct. To determine whether checks are being issued for unauthorized expenditures, the auditor is most likely to select from the population of canceled checks. For each check, the auditor would then look for evidence supporting the payment, such as a purchase order, a receiving report, and an approved invoice. Choice "a" is incorrect. If the auditor selected from the population of purchase orders, he or she would never find those check requests that were missing the purchase orders. Without purchase orders, the expenditures would be considered unauthorized. Choice "c" is incorrect. If the auditor selected from the population of receiving reports, he or she would never find those check requests that were missing the receiving reports. Without receiving reports, the expenditures would be considered unauthorized. Choice "d" is incorrect. If the auditor selected from the population of approved vouchers, he or she would never find those check requests that were missing the approved vouchers. Without approved vouchers, the expenditures would be considered unauthorized.

• Question 880:

  Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

  A. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.

  B. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

  C. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

  D. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.

  Correct Answer: C

  Explanation: Choice "c" is correct. Unrecorded trade accounts payable are best identified by reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. Choice "a" is incorrect. There is not usually a predictable relationship between accounts payable and cash payments, because management can pay cash or incur additional liabilities at its discretion. Choice "b" is incorrect. Reconciling vendors' statements to the file of receiving reports would not identify unrecorded payables, as the vendor statement would still agree with the receiving report even if the payable were not recorded. Choice "d" is incorrect. Investigating payables already recorded would not help identify unrecorded trade payables.