Which of the Following Is a Substantive Test That an Auditor

question 61

Multiple Choice

Which of the following is a substantive test that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable?

• A)Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.
• B)Receiving the client's unopened mail for a reasonable period of time after year-end to search for unrecorded vendor's invoices.
• C)Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.
• D)Confirming accounts payable balances with known vendors and suppliers who have zero balances at year-end.

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Definitions:

Profit Equation

A financial formula used to calculate a company's profits, typically represented as Total Revenues minus Total Expenses.

Fixed Cost

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance.

Variable Cost

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Break-Even Analysis

A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.