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Question 361.

What is the primary purpose of evaluating accounts payable controls during an internal audit engagement?

1. Determine whether liabilities and payments are valid, authorized, accurate, complete, and processed according to established requirements
2. Guarantee that every supplier is paid immediately
3. Eliminate the need for procurement controls
4. Replace vendor management

Correct Answer: 1. Determine whether liabilities and payments are valid, authorized, accurate, complete, and processed according to established requirements

Explanation:

Accounts payable controls help ensure that payments relate to legitimate obligations, are supported by appropriate documentation, and are approved by authorized personnel. Internal audit may review invoice processing, purchase-order matching, vendor master data, duplicate-payment controls, payment authorization, reconciliations, and exception handling. Effective controls reduce risks of overpayment, duplicate payment, fictitious vendors, unauthorized disbursements, and inaccurate liabilities.

Question 362.

Which control BEST reduces the risk of paying an invoice for goods that were never received?

1. Paying invoices immediately upon receipt
2. Allowing accounts payable staff to approve invoices independently
3. Relying only on the supplier’s invoice
4. Matching the invoice to an approved purchase order and evidence of receipt before payment

Correct Answer: 4. Matching the invoice to an approved purchase order and evidence of receipt before payment

Explanation:

A three-way match compares the invoice with the purchase order and receiving evidence. This helps determine whether the goods or services were ordered, received, and billed according to approved terms. Internal audit should also review how matching exceptions are handled, because frequent overrides can weaken the effectiveness of the control.

Question 363.

What is the primary purpose of reviewing duplicate-payment controls?

1. Increase payment processing speed
2. Identify and prevent multiple payments of the same obligation
3. Replace invoice approval procedures
4. Eliminate the need for supplier reconciliations

Correct Answer: 2. Identify and prevent multiple payments of the same obligation

Explanation:

Duplicate payments can result from repeated invoices, system errors, inconsistent invoice numbering, or deliberate manipulation. Internal audit may review automated duplicate checks and analyze vendor, invoice number, amount, date, and purchase-order data for exact or near matches. Potential duplicates should be investigated because some apparently similar transactions may be legitimate.

Question 364.

Which analytical procedure would BEST identify invoices that may have been split to avoid an approval threshold?

1. Review annual purchases by supplier
2. Compare total purchases with budget
3. Search for multiple related invoices just below the authorization limit within a short period
4. Review supplier addresses only

Correct Answer: 3. Search for multiple related invoices just below the authorization limit within a short period

Explanation:

Invoice splitting may be used to avoid higher-level approval or competitive purchasing requirements. Internal audit can analyze transactions by vendor, requester, amount, date, description, and cost center to identify suspicious groupings. Flagged transactions should be investigated to determine whether they represent valid separate purchases or an inappropriate attempt to circumvent controls.

Question 365.

What is the primary purpose of testing vendor-master change controls?

1. Determine whether sensitive vendor changes are authorized, verified, and accurately recorded
2. Eliminate all vendor changes
3. Replace payment authorization
4. Guarantee that suppliers never change bank accounts

Correct Answer: 1. Determine whether sensitive vendor changes are authorized, verified, and accurately recorded

Explanation:

Vendor master data can directly affect where payments are sent. Changes to bank accounts, addresses, tax information, or payment terms therefore create elevated fraud and error risk. Internal audit may review user access, approvals, audit trails, independent verification, and monitoring of significant changes, especially changes made shortly before large payments.

Question 366.

Which control is MOST effective for validating a supplier request to change bank details?

1. Replying to the same email that requested the change
2. Independently confirming the request using previously verified supplier contact information
3. Accepting the change if the supplier logo appears on the request
4. Updating the record before verification to avoid payment delay

Correct Answer: 2. Independently confirming the request using previously verified supplier contact information

Explanation:

Fraudsters may impersonate suppliers and request that payments be redirected to fraudulent accounts. Independent verification using trusted contact information obtained from an existing reliable source helps reduce this risk. Internal audit may also assess approval requirements, access restrictions, audit trails, and whether changes are monitored before high-value payments are released.

Question 367.

What is the primary purpose of reviewing manual payment transactions?

1. Eliminate all manual payments
2. Replace automated payment controls
3. Guarantee that every manual payment is fraudulent
4. Identify whether transactions processed outside normal automated workflows are properly justified and authorized

Correct Answer: 4. Identify whether transactions processed outside normal automated workflows are properly justified and authorized

Explanation:

Manual payments may be necessary for urgent or unusual circumstances, but they can bypass standard system controls. Internal audit should examine their business purpose, supporting documentation, authorization, user access, and frequency. Repeated or high-value manual payments may indicate process weaknesses or inappropriate use of exception procedures.

Question 368.

Which situation would MOST strongly warrant additional testing of accounts payable activity?

1. Routine invoices pass automated matching controls
2. Approved utility payments follow established procedures
3. A large payment is released to a newly created vendor shortly after its bank details are entered
4. Recurring contract invoices are processed consistently

Correct Answer: 3. A large payment is released to a newly created vendor shortly after its bank details are entered

Explanation:

A newly created vendor receiving a large payment soon after setup can represent elevated fraud risk, particularly if the bank details were entered recently or supporting documentation is limited. Internal audit should examine vendor legitimacy, ownership, approval, bank verification, invoice support, payment authorization, and any relationship with employees or other suppliers.

Question 369.

What is the primary purpose of reviewing accounts payable aging?

1. Identify overdue liabilities, unresolved disputes, and unusual old balances that may require investigation
2. Guarantee all old invoices are invalid
3. Replace supplier statements
4. Eliminate accrued liabilities

Correct Answer: 1. Identify overdue liabilities, unresolved disputes, and unusual old balances that may require investigation

Explanation:

Accounts payable aging can reveal long-outstanding invoices, duplicate liabilities, disputed amounts, unclaimed credits, or processing delays. Internal audit may investigate significant old balances and evaluate whether liabilities remain valid. Unusual aging patterns may also indicate weak vendor reconciliation, poor issue resolution, or inaccurate accounting records.

Question 370.

What is the primary purpose of reconciling supplier statements to accounts payable records?

1. Increase the number of recorded invoices
2. Identify missing, duplicate, disputed, or incorrectly recorded transactions
3. Replace purchase-order matching
4. Guarantee that the supplier’s records are always correct

Correct Answer: 2. Identify missing, duplicate, disputed, or incorrectly recorded transactions

Explanation:

Supplier statement reconciliation can identify invoices or credits recorded by the supplier but missing from the organization’s accounts, as well as differences in payments or balances. Internal audit may evaluate whether significant suppliers are reconciled periodically and whether discrepancies receive timely follow-up. The supplier statement itself should also be evaluated for reliability.

Question 371.

What is the primary purpose of reviewing payment-run controls?

1. Determine whether proposed payments are complete, accurate, authorized, and protected from unauthorized alteration before release
2. Guarantee every approved invoice is paid early
3. Replace bank reconciliation
4. Eliminate treasury involvement

Correct Answer: 1. Determine whether proposed payments are complete, accurate, authorized, and protected from unauthorized alteration before release

Explanation:

Payment runs often involve significant cash outflows and should be subject to strong review and authorization. Internal audit may assess whether payment files are generated from approved liabilities, reviewed for unusual items, protected from change after approval, and released by authorized users. Segregation of duties and system access are important supporting controls.

Question 372.

Which control BEST protects an approved electronic payment file from unauthorized modification?

1. Allowing all accounts payable users to edit the file
2. Emailing the payment file through unsecured channels
3. Restricting modification after approval and using controlled transmission to the bank
4. Removing payment audit logs

Correct Answer: 3. Restricting modification after approval and using controlled transmission to the bank

Explanation:

A payment file can be compromised if account details or amounts can be changed after approval. Effective controls may include restricted access, encryption, file integrity checks, secure bank transmission, dual authorization, and reconciliation of released payments. Internal audit should assess whether changes after approval are prevented or detected promptly.

Question 373.

What is the primary purpose of testing accrued liabilities?

1. Determine whether obligations incurred but not yet invoiced are identified and recorded appropriately
2. Eliminate all estimates
3. Replace accounts payable
4. Guarantee suppliers invoice before period-end

Correct Answer: 1. Determine whether obligations incurred but not yet invoiced are identified and recorded appropriately

Explanation:

Accrued liabilities help ensure expenses and obligations are recognized in the appropriate period even when an invoice has not yet been received. Internal audit may review contracts, receiving records, purchase commitments, subsequent invoices, and management estimates. Weak accrual processes can result in understated liabilities and expenses.

Question 374.

Which procedure would BEST help identify unrecorded liabilities at period-end?

1. Review only invoices dated before period-end
2. Examine significant invoices and payments received shortly after period-end for obligations relating to the prior period
3. Review only cash balances
4. Examine payroll records

Correct Answer: 2. Examine significant invoices and payments received shortly after period-end for obligations relating to the prior period

Explanation:

A search for unrecorded liabilities often includes reviewing subsequent invoices and cash disbursements to determine whether they relate to goods or services received before period-end. Internal audit may also examine receiving records, unmatched purchase orders, contracts, and accrual calculations. The objective is to assess completeness of liabilities.

Question 375.

What is the primary purpose of reviewing accounts payable cutoff controls?

1. Determine whether purchases and liabilities are recorded in the appropriate reporting period
2. Guarantee every invoice is paid before closing
3. Replace receiving controls
4. Eliminate accruals

Correct Answer: 1. Determine whether purchases and liabilities are recorded in the appropriate reporting period

Explanation:

Cutoff controls help ensure that purchases, receipts, expenses, and liabilities are recorded in the period to which they relate. Internal audit may examine receiving documents, invoices, purchase orders, and subsequent payments around period-end. Incorrect cutoff can materially affect expenses, inventory, and liabilities.

Question 376.

Which situation MOST strongly indicates a possible accounts payable cutoff problem?

1. A January invoice relates to goods received in January
2. A December purchase order remains open because goods have not shipped
3. Goods received before year-end are recorded as a liability only in the following period
4. A supplier credit is recorded when approved

Correct Answer: 3. Goods received before year-end are recorded as a liability only in the following period

Explanation:

If goods were received before the reporting date, the related obligation may need to be recognized in that period even if the invoice arrives later. Recording the liability only in the next period can understate expenses or inventory-related liabilities. Internal audit should examine receiving records and subsequent invoices to identify similar issues.

Question 377.

What is the primary purpose of analyzing vendor-payment concentrations?

1. Identify significant dependency or unusual payment patterns associated with particular suppliers
2. Guarantee large suppliers receive preferential treatment
3. Replace supplier due diligence
4. Eliminate small suppliers

Correct Answer: 1. Identify significant dependency or unusual payment patterns associated with particular suppliers

Explanation:

A high concentration of payments to one or a few vendors may create operational, financial, or fraud risk. Internal audit may compare payment trends, contract terms, supplier ownership, procurement activity, and business dependency. Concentration itself is not necessarily inappropriate, but it should be understood and monitored when it represents material exposure.

Question 378.

Which factor should MOST influence the level of audit testing applied to accounts payable transactions?

1. The number of invoices printed
2. The significance of payment risk, control reliability, transaction characteristics, and identified exceptions
3. Whether suppliers are domestic
4. The age of the accounting system alone

Correct Answer: 2. The significance of payment risk, control reliability, transaction characteristics, and identified exceptions

Explanation:

Audit testing should be risk-based. Higher-risk transactions may include large manual payments, new vendors, unusual bank changes, override activity, or period-end entries. Strong automated controls may support a different testing approach than weak manual processes. Internal audit should adjust the nature and extent of procedures based on evidence and emerging findings.

Question 379.

What is the primary purpose of reviewing stale or uncashed checks?

1. Identify outstanding payments that may require investigation, cancellation, reissuance, or accounting adjustment
2. Guarantee every stale check represents fraud
3. Replace bank reconciliation
4. Eliminate check payments

Correct Answer: 1. Identify outstanding payments that may require investigation, cancellation, reissuance, or accounting adjustment

Explanation:

Checks that remain outstanding for long periods may relate to incorrect addresses, duplicate payments, lost checks, inactive vendors, or unresolved liabilities. Internal audit may review aging, subsequent activity, stop-payment procedures, and accounting treatment. Long-outstanding items should not simply remain on reconciliations without investigation.

Question 380.

Which approach BEST supports effective internal audit assurance over accounts payable and disbursement processes?

1. Review only invoice approvals
2. Focus exclusively on year-end balances
3. Evaluate vendor setup, invoice matching, duplicate controls, payment authorization, file security, accruals, cutoff, reconciliations, and unusual transactions using reliable evidence
4. Assume automated payment systems eliminate disbursement risk

Correct Answer: 3. Evaluate vendor setup, invoice matching, duplicate controls, payment authorization, file security, accruals, cutoff, reconciliations, and unusual transactions using reliable evidence

Explanation:

Accounts payable and disbursement risks extend from vendor creation through final payment and reconciliation. Internal audit should evaluate authorization, segregation of duties, master-data changes, invoice matching, payment processing, accruals, cutoff, and exception handling. Data analytics can help identify duplicates, unusual vendors, threshold avoidance, and manual payments, while reliable supporting evidence is needed to substantiate conclusions.