Audit and Assurance Practice Exam

In what situation would an auditor examine a sample of the cash disbursements made by the client after year-end?

1. If liabilities were recorded in the prior year

2. If liabilities were recorded properly in the year being audited

3. If there were outstanding checks

4. If there were no liabilities

The correct answer is: If liabilities were recorded properly in the year being audited

Examining a sample of cash disbursements made by the client after year-end is particularly relevant when assessing whether liabilities are recorded properly in the year being audited. This examination allows the auditor to verify that all liabilities that should be reported in that year have been accurately captured and recorded. When an auditor analyzes cash disbursements made after the year-end, they are looking to ensure that any obligations incurred before the year-end are reflected in the financial statements. This process helps in confirming that the financial position presented is true and that expenses are not being omitted or improperly recorded, which could affect compliance with reporting standards. The consideration of previously recorded liabilities or the presence of outstanding checks might pertain to cash management or prior accounting periods but does not directly support verifying the proper recording of liabilities in the audited year. Conversely, if there were no liabilities at the time of reporting, examining post-year-end disbursements would not typically be necessary or relevant, as it wouldn’t provide useful insight into the accuracy of the year-end liabilities. Thus, the focus must be on the proper recording of all liabilities in the year being audited, aligning with what the auditor needs to verify through the examination of post-year-end cash disbursements.