Question

During a preliminary survey, an auditor found that several accounts payable vouchers for major suppliers required adjustments for duplicate payment of prior invoices. This would indicate?

1) A need for additional testing to determine related controls and the current exposure to duplicate payments made to suppliers.
2) The possibility of unrecorded liabilities for the amount of the overpayments.
3) Insufficient controls in the receiving area to ensure timely notice to the accounts payable area that goods have been received and inspected.
4) The existence of a sophisticated accounts payable system that correlates overpayments to open invoices and therefore requires no further audit concern.

Answer 1

The auditor's findings suggest a need for additional testing to assess the effectiveness of accounting controls and to address the risk of duplicate payments, which is highlighted by Noel's discovery of a significant overpayment error. The correct option is: 1).

Step-by-step explanation:

When an auditor finds several accounts payable vouchers requiring adjustments for duplicate payment of prior invoices, this suggests a need for additional testing to determine the effectiveness of related controls and the current risk of making duplicate payments to suppliers. In this context, Noel's discovery of a $250,000 overpayment error highlights the need for vigilant checks within the accounting process. The fact that no one else noticed the error apart from Noel indicates that there may be insufficient controls in the system. Rather than pointing to a sophisticated system, these issues signal a likely need for improvement in the controls to prevent overpayments.