AT.M-1402
EXPENDITURE CYCLE
MULTIPLE CHOICES
1. It is an internal document sent by the department in need of the supplies to the purchasing
department.
A. Purchase requisition
C. Purchase Invoice
B. Receiving report
D. Purchase order
2. Which of the following policies is an internal control weakness related to the acquisition of
factory equipment?
A. Advance executive approvals are required for equipment acquisitions.
B. Variances between authorized equipment and actual costs are to be immediately reported
to the management.
C. Depreciation policies are reviewed only once a year.
D. Acquisitions are to be made through and approved by the department in need of the
equipment.
3. An auditor’s primary concern when performing test of control over purchasing is to determine
whether
A. Purchase orders agree to purchase requisitions
B. Purchases are properly recorded
C. Purchases are properly authorized
D. Purchasing personnel are performing their assigned functions properly
4. Which among these activities is not an appropriate function of the purchasing department?
A. Determine the proper quantity of purchases
B. Prepare the purchase order
C. Determine the right vendor or supplier for the purchases
D. Prepare the receiving report upon receipt of the goods
5. Employees in the same department most likely would approve purchase orders, and also
A. Reconcile the invoice file
C. Authorize requisitions of goods
B. Inspect goods upon receipt
D. Negotiate terms with vendors
6. Two copies of purchases order are accomplished by the purchasing department. One copy is
sent to the vendor and the other copy is sent to which department?
A. User
C. Receiving
B. Purchasing
D. Accounting
7. Internal control is strengthened when the quantity of merchandise ordered is omitted from the
copy of the purchase order sent to the
A. Department that initiated the requisition
B. Receiving department
C. Purchasing agent
D. Accounts payable department
8. It is used to describe the receiving department’s copy of the purchase order that does not
indicate the number of items ordered.
A. Blind copy
C. Xeroxed copy
B. Omitted copy
D. Cat copy
9. Omitting quantities from copies of purchase orders sent to the receiving department is a
control procedure intended mainly to
A. Ensure that goods received are physically counted by receiving department personnel
B. Identify and return damaged goods as soon as they are received
C. Provide a cross-check for verifying the accuracy of perpetual inventory records
D. Prevent theft of goods by receiving department personnel
10. The authority to accept incoming goods in receiving should be based on a/an
A. Vendor’s invoice
C. Bill of lading
B. Materials requisitions
D. Approved purchase order
11. Control over merchandise purchase is improved when a company’s receiving department
A. Accepts merchandise only if an approved purchase order is on hand
B. Accepts and count all merchandise received from known vendors
C. Relies on shipping documents to prepare receiving reports
D. Is responsible for handling merchandise but not for representing receiving reports
12. The purchase order forwarded to the receiving department indicates the vendor’s name and
the quantities of materials ordered. This may possibly cause
A. Payment for unauthorized items
B. Payment for unauthorized vendors
C. Overpayment for incomplete deliveries
D. Delay in recording purchases
13. Which of the functions below is not that of the receiving department?
A. Preparing the receiving report
B. Counting the number of goods received
C. Preparing a purchase invoice
D. Checking the goods received for quality
14. Upon receipt of goods, the receiving clerk should match the goods with the
A. Purchase order and requisition
B. Vendor’s invoice and the receiving report
C. Vendor’s shipping document and the purchase order
D. Receiving report and the vendor’s shipping documents
15. A company policy should clearly indicate that defective merchandise returned by customers
is to delivered to the
A. Sales clerk
C. Inventory control clerk
B. Receiving clerk
D. Accounts receivable clerk
16. A receiving report should be accompanied by a copy of the vendor’s invoice to ascertain that
A. The merchandise billed was received by the company
B. The merchandise received was billed by the vendor
C. The invoice was correctly prepared
D. A check was prepared for every invoice
17. Which department matches the supplier’s invoice, the purchase order and the receiving
report?
A. Treasury
C. Receiving
B. Purchasing
D. Accounting
18. The accounts payable department receives a purchase order form to accomplish all of the
following except
A. Comparing invoice price to purchase order price
B. Ensuring that the purchase had been properly authorized
C. Comparing quantity ordered to quantity purchased
D. Ensuring that the goods had been received by the party requesting the goods
19. Preventive controls in the accounts payable area should include a separation of which of the
following functions?
A. Vendor invoice verification and merchandise ordering
B. Physical handling of merchandise received and preparation of receiving reports
C. Check signing and cancellation of payment documentation
D. Cash disbursements and vendor invoice verification
20. Which of the following would be the best procedure to determine whether purchases were
properly authorized?
A. Review and evaluate a flowchart of purchasing procedures
B. Vouched payment for selected purchases to supporting receiving reports
C. Determine whether a sample of entries in the purchase journal is supported by properly
executed purchase orders
D. Discuss authorization procedures with personnel in the controllers and purchasing
functions
21. A voucher is a document prepared by
A. Purchasing department to indicate amount to be purchase
B. Receiving departments to indicate the quantity received and approves payment
C. Accounts payable department to authorize a cash disbursement
D. Accounts payable department to indicate the recognition of liability
22. Which of the functions below is not usually performed in the vouchers payable department?
A. Matching the vendor’s invoice with the related receiving report
B. Approving vouchers for payment by having an authorize employee sign the vouchers
C. Indicating the asset and the expense account to be debited
D. Accounting for unused pre-numbered purchase orders and receiving reports
23. Accounts payable department generally should
A. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed
B. Ascertain that each acquisition is approve as to price, quantity, and quality by an
authorized employee
C. Obliterate the quantity ordered on the receiving department copy of the purchase order
D. Establish the agreement of the vendor’s invoice with the receiving report and purchase
order
24. Before approving payment and recording in the journals by the accounting department, the
following document must be present, except
A. Canceled check
C. Purchase invoice
B. Receiving report
D. Purchase order
25. The person who signs the check
A. Reviews the monthly bank reconciliation
B. Returns the check to accounts payable
C. Is denied access to the supporting documents
D. Is also responsible for mailing checks
26. To ensure that each voucher is submitted and paid only once, an auditor most likely would
examine a sample of paid vouchers and determine whether each voucher is
A. Supported by a vendor’s invoice
B. Stamped “paid” by the check signer
C. Pre-numbered and accounted for
D. Approved for authorized purchases
27. Which is incorrect?
A. After payment, the purchase order, receiving report and the vendor’s invoice are stamped
paid to prevent duplicate payments
B. Before recording in the journals, accounting department normally matches purchase
order, receiving repot and vendor’s invoice
C. Voided checks are mutilated, retained and accounted for
D. Two signatures must be present on checks regardless of its amount
28. Which of the following is the least concern to an auditor? (which means internal control is
not weak)
A. The controller distributes the check to payees after the checks have been signed
B. Cash collections are not deposited intact in a daily basis
C. The treasure does not verify the names and addresses or the payees of the checks
D. Checks are assigned only by a single company officer
29. An auditor vouches a sample of entries in the voucher register to the supporting documents.
Which assertion would this test of controls most likely support?
A. Valuation
C. Existence
B. Completeness
D. Rights
30. An entity’s internal control requires for every check request that there be an approved
voucher, supported by a pre-numbered purchase order and a pre-numbered 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
C. Receiving report
B. Canceled checks
D. Approved vouchers
31. To determine whether all approved expenditures for purchases are received, an auditor most
likely would select items for testing the population of all
A. Purchase orders
C. Receiving report
B. Canceled checks
D. Approved vouchers
32. An auditor performs test to determine whether all merchandise for which the client was billed
was received. The population for this test consists of all
A. Merchandise received
C. Canceled checks
B. Vendor’s invoices
D. Receiving reports
33. An internal control questionnaire indicates that an approved receiving report is required to
accompany every check request for payment of merchandise. Which of the following procedures
provides the greatest assurance that this control is operating effectively?
A. Select and examine receiving reports and ascertain that the related canceled checks are
dated no earlier than the receiving reports
B. Select and examine receiving reports and ascertain that the related canceled checks are
dated no later than the receiving reports
C. Select and examine canceled checks and ascertain that the related receiving reports are
dated no earlier than the checks
D. Select and examine canceled checks and ascertain that the related receiving reports are
dated no later than the checks
34. Which of the following is a standard over cash disbursements?
A. Checks should be signed by the controller and at least one other employee of the entity
B. Checks and supporting documents should be cancelled immediately after the check is
returned with the bank statement
C. Checks should be sent directly to the payee by the employee who prepares documents
that authorize check preparation
D. Checks should be consecutively numbered and accounted for by the person who prepares
bank reconciliations
35. A client erroneously recorder 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?
A. Footing the purchases journal
B. Reconciling vendor’s monthly statements with subsidiary payable ledgers accounts
C. Sending a written quarterly confirmations to all vendors
D. Tracing totals from the purchases journal to the ledger accounts
36. Which of the following would prevent a p aid disbursement from being paid a second time?
A. Individuals responsible for signing checks should prepare vouchers
B. Disbursement should be approved by at least two responsible officials
C. The disbursement date should be within a few days of the date the voucher is presented
for payment
D. The official signing the check should cancel the supporting documents
37. A CPA learns that his client has paid a vendor twice for the same shipment, once based upon
the original invoice and based upon the monthly statement. A control procedure that should have
prevented this duplicate payment is
A. Attachment of the receiving report to the disbursement support
B. Pre-numbering of disbursement vouchers
C. Use of a limit or reasonableness test
D. Pre-numbering of receiving reports
38. An auditor suspects that certain employees are ordering merchandise for themselves over the
internet without recording the purchase or receipt of the merchandise. When vendor’s invoices
arrive, one of the employees approves the invoices for payment. After the invoices are paid, the
employee destroys the invoices and the related vouchers. In gathering evidence regarding the
fraud, the auditor most likely would select items for testing from the file of all
A. Cash disbursements
C. Receiving reports
B. Approved vouchers
D. Vendor’s invoices
39. It shows the total hours worked by each employee in a day.
A. Clock card
C. Payroll register
B. Job time ticket
D. Time summary
40. It shows what specific job/s the employees spend his hours on in a day.
A. Clock card
C. Payroll register
B. Job time ticket
D. Time summary
41. Which of the following procedures is most likely to ensure that employee job time tickets are
accurate?
A. Approve the payroll voucher in the accounts payable department
B. Keep employment information in the human resources
C. Make sure that the number of hours per week on each employee’s job time ticket is 40
D. Check the employee check cars against the job time tickets
42. The total of the individual employee earnings in the payroll master file equals the
A. Total balance of gross payroll in general ledger accounts
B. Total of the checks drawn to employees for payroll
C. Total gross payroll plus the total contributed by the employer for payroll taxes
D. Total gross pay for the current week’s payroll
43. Which department approves changes in pay rates and deductions from employee salaries?
A. Personnel
C. Accounting
B. Treasury
D. Payroll
44. An auditor vouched data for a sample of employees in a payroll register to approved clock
card data to provide assurance that
A. Payment of employees are computed at authorized rates
B. Employees worked the number of hours for which they are paid
C. Segregation of duties exist between the preparation and distribution of the payroll
D. Controls relating to unclaimed payroll checks are operating effectively
45. Which of the following best describes proper internal control over payroll?
A. The preparation of the payroll must be under the control of the personnel department
B. The confidentiality of employee payroll data should be carefully protected to prevent
fraud
C. The duties of hiring, payroll computation and payment to employees should be
segregated
D. The payment of cash to employees should be replace with payment by checks
46. No individual with access to time cards, payroll records, or checks should also be permitted
access to
A. Personnel records
C. The canceled check
B. The computer
D. Job time tickets
47. The payroll department should be responsible for
A. Processing payroll transactions
B. Authorization of new employee
C. Timekeeping
D. Signing payroll checks
48. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to
separate the
A. Administrative controls from the internal accounting controls
B. Human resources function from the controllership function
C. Operational responsibility from the record keeping responsibility
D. Authorization of transactions from the custody of related asset
49. Which of these is a control that most likely could help prevent employee payroll fraud?
A. The personnel department promptly sends employee termination notices to the payroll
supervisor
B. Employees who distribute payroll checks forward unclaimed payroll checks to the absent
employee’s supervisor
C. Salary rates resulting from new hires are approved by the payroll supervisor
D. Total hours used for determination of gross pay are calculated by the payroll supervisor
50. To minimize the opportunities for fraud, unclaimed cash payroll should be
A. Deposited in a safe-deposit box
B. Held by the payroll custodian
C. Deposited in a special bank account
D. Held by the controller
51. In determining the effectiveness of an entity’s controls relating to the existence or occurrence
assertion for payroll transactions, an auditor most likely would inquire about and
A. Inspect evidence of accounting for pre-numbered payroll checks
B. Recomputed the payroll deductions for employee fringe benefits
C. Verify the preparation of the monthly payroll account bank reconciliation
D. Observe the segregation of duties concerning personnel responsibilities and payroll
disbursement
52. Which of the following controls most likely would prevent direct labor hours from being
charged to manufacturing overhead?
A. Periodic independent counts of work in process for comparison to recorded amounts
B. Comparison of daily journal entries with approved production orders
C. Use of time tickets to record actual labor worked on production orders
D. Reconciliation of work-in-process inventory with periodic cost budgets
53. Proper internal control over the cash payroll function would mandate which of the following?
A. The payroll clerk should fill the envelopes with cash and a computation of the net wages
B. Unclaimed pay envelopes should be retained by the paymaster
C. Each employee should be asked to sign a receipt
D. A separate checking account for payroll be maintained
54. The auditor may observe the distribution of paychecks to ascertain whether
A. Pay rate authorization is properly separated from the operating function
B. Deductions from gross pay are calculated correctly and are properly authorized
C. Employees of record actually exist and are employed by the client
D. Paychecks agree with the payroll register and the time cards
55. It would be appropriate for the payroll accounting department to be responsible for which of
the following functions?
A. Approval of the employee time records
B. Maintenance of records of employment, discharges, and pay increases
C. Preparation of periodic government reports as to employees’ earning and withholding
taxes
D. Temporary retention of unclaimed employee paychecks
56. The auditor’s primary concern in the examination of payroll transactions is the possibility of
A. Overpayment and unauthorized payments
B. Posting of gross payroll amounts to incorrect salary expense accounts
C. Misfootings of employee time cards
D. Excess withholding of amounts required to withhold
57. “Recorded payroll payments are for work actually performed by non-fictitious employees”
satisfies the control objective of
A. Authorization
C. Validity
B. Completeness
D. Valuation
58. “Existing payroll transactions are recorded” satisfies the control objective of
A. Authorization
C. Validity
B. Completeness
D. Valuation
59. To verify debits to the perpetual inventory records, an auditor would sample from the
recorded debits to a sample of
A. Purchase approvals
C. Purchase orders
B. Purchase invoices
D. Purchase requisitions
60. To verify credits to the perpetual inventory records, an auditor would sample from the
recorded credits to a sample of
A. Receiving reports
C. Vendor’s invoices
B. Purchase orders
D. Shipping documents
61. To determine that the client has completely included merchandise it owns in its ending
inventory, it reviews and test the
A.
B.
C.
D.
Terms of the open purchase orders
Purchase cut-off
Commitments
Purchase invoices received around year-end
62. In most manufacturing companies, the inventory and warehousing cycle begins with
A. The receipt of a customer’s order
B. The completion of production of a customer’s order
C. The initiation of production of a customer’s order
D. The acquisitions of raw materials for production of an order
63. To adequately provide for the segregation of duties, the purchase requisitions for the regular
inventory stock should be initiated by which of the following departments?
A. Purchasing departments
C. Shipping department
B. Sales department
D. Warehouse
64. Which of the following is a question that the auditor would expect to find on the production
cycle section of an internal control questionnaire?
A. Are vendor’s invoices for raw materials approved for payment by an employee who is
independent of the cash disbursements function?
B. Are signed checks for the purchase of raw materials mailed directly after signing without
being returned to the person who authorized the invoice processing?
C. Are all releases by storekeepers of raw materials from storage based on approved
requisition documents?
D. Are details of individual disbursements for raw materials balanced with the total to be
posted to the appropriate general ledger account?
65. Which of these is implemented to maintain accurate inventory records?
A. Periodic counts are conducted to adjust the perpetual records
B. A JIT system to keep inventory levels to optimum balance
C. Periodic comparison of record and net realizable value of inventories
D. Supporting documents are matched before payment is approved
66. A most likely procedure in obtaining an understanding of a manufacturing entity’s internal
control over inventory balances
A. Performing test counts when observing actual entity’s records?
B. Performing analytical procedures designed to identify significant cost variances
C. Analyzing the inventory turnover and liquidity ratios
D. Reviewing the entity’s description of inventory policies and procedures
67. Comparing material usage reports to raw material stores issue slips is a control is a control to
help insure which assertion?
A. Existence and occurrence
C. Rights and obligations
B. Completeness
D. Valuation or allocation
68. The auditor tests the quantity of materials charged to work in process by tracing these
quantities to
A. Cost ledgers
C. Receiving reports
B. Perpetual records
D. Material requisitions
69. The accuracy of perpetual inventory records may be established in part by comparing
perpetual inventory records with
A. Purchase requisitions
C. Receiving reports
B. Purchase orders
D. Vendor payment
70. As finished goods are completed by the production department and await shipment, they are
placed in the
A. Stockroom
C. Waiting room
B. Storeroom
D. Shipping room
71. Which of the following controls most likely addresses the completeness assertion for
inventory?
A. Work in process account is periodically reconciled with subsidiary records
B. Employees responsible for custody of finished goods do not perform the receiving
function
C. Receiving reports are pre-numbered and periodically reconciled
D. There is a separation of duties between payroll department and inventory accounting
personnel
72. The objectives of internal control for a production cycle are to provide assurance that
transactions are properly executed and recorded, and that
A. Production orders are pre-numbered and signed by a supervisor
B. Custody of work in progress and of finished goods is properly maintained
C. Independent internal verification of activity reports is established
D. Transfers to finished goods are documented by a completed production report and a
quality control report
73. Which of the following is not true relating to the auditors’ observation of the client’s physical
inventory?
A. The auditors should evaluate the client’s planning of the physical inventory
B. The auditors should make certain that consigned items from suppliers are included in
physical inventory totals
C. The auditors should evaluate the adequacy of the client’s counting procedures
D. The auditors should take test counts of the client’s inventory