ExpertHard1 markMultiple Choice
CPA · Question 24 · Area III: Procedures
Which of the following procedures would be MOST effective in detecting unrecorded liabilities (completeness of accounts payable)?
Which of the following procedures would be MOST effective in detecting unrecorded liabilities (completeness of accounts payable)?
Answer options:
A.
Confirming large accounts payable balances recorded at year-end.
B.
Examining cash disbursements recorded after the balance sheet date.
C.
Vouching recorded accounts payable to vendor invoices.
D.
Recalculating interest expense on bonds payable.
How to approach this question
To find what is MISSING (Completeness), look outside the books (subsequent payments). To test what is THERE (Existence), look inside the books.
Full Answer
B.Examining cash disbursements recorded after the balance sheet date.✓ Correct
Examining cash disbursements recorded after the balance sheet date.
The search for unrecorded liabilities involves examining cash disbursements made subsequent to year-end. If a payment is made in January for services received in December, a liability should have been recorded in December. This is the primary test for Completeness of AP.
Common mistakes
Selecting confirmation (Option A), which is weak for completeness because you can't confirm a vendor you don't know exists.
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