CH 12: auditing the purchasing process Flashcards
What are the 5 steps in the process of auditing purchases
1: initial audit planning
2: understand internal controls and determine preliminary audit strategy
3: test controls based on preliminary audit strategy
4: determine and perform substantive procedures and evaluate results
5: draw conclusion about fair presentation
an entity’s purchasing process consists of activities related to the ___________
acquisitions and payments for goods and services
what are normally the three classes of transaction in the purchasing process
- purchasing goods and services (on credit)
- making payments (cash disbursement transactions)
- recording purchase adjustments
what are the largest of the transaction classes int he purchasing process
credit purchases and cash disbursements
purchases and accounts payable transactions should be recorded upon the ______
receipt of goods
when are purchase discounts recorded?
when recording the cash disbursement
the auditor should obtain ______________ for each assertion related to the purchasing process
sufficient appropriate evidence
for companies that purchase goods on account, the transaction should record ________ and __________ upon the receipt of the goods
purchases and accounts payable
upon payment of a liability ____________ and ________ is reduced
accounts payable; cash
if cash disbursements are understated, accounts payable with be ____________
overstated
what are the relevant assertions to the transaction classes and related discloses of: purchases of material or goods, various expenses, and disclosures related to purchase transaction
- occurence
- completeness
- accuracy
- cutoff
- classification
- presentation
what are the relevant assertions to the account balance an related disclosures such as: accounts payable, various purchased assets, disclosures related to accounts payable
- existence
- rights and obligations
- completeness
- accuracy, valuation and allocation
- classification
- presentation
what is the primary relevant assertion in the initial procedures regarding Accounts Payable account balance
valuation
what are the initial procedures (4) for the AP account balances- valuation
- agree beginning balance to prior year working paper
- obtain accounts payable trial balance
- scan for unusual transactions on the TB
- agree sub ledger to general ledger
the rights and obligations assertion with respect to accounts payable relates to whether accounts payable __________________
reflect the recorded liability of the entity
substantive analytical procedures verify ______________
the auditor’s expectations of relationships such as AP to purchases
what are the relevant assertion(s) related to vouching recorded payable to supporting documentation (test of details purchasing transaction)
occurrence, accuracy, cutoff, classification
what is vouching?
source documents to accounting records
what are the relevant assertion(s) related to trace purchases received (part of test of details of purchasing transactions)
completeness
when performing cutoff tests (inspect) for purchases the auditors are verifying ________________
that purchases/ payable are recorded in the proper time period
what are the relevant assertion(s) for performing a search for unrecorded liabilities (under the test of details of transactions)
completeness, cutoff
performing a search for unrecorded liabilities is designed to ______________
detect significant unrecorded liabilities at the balance sheet date
test of details confirms
accounts payable
what are the relevant assertions for the test of details of account balances
-existence
- accuracy, valuation and allocation
- completeness
what are the three documents in a three-way match of purchase documents
purchase order, receiving report and vendor invoice
vouching is not applicable to which assertion
completeness
what period does the purchase cutoff test typically cover
period or 5-10 business days before and after BS
examining subsequent payments is a common procedure in
performing search for unrecorded liabilities
what happens in examining subsequent payments
examining vouchers paid after the balance sheet date (or interim date) to determine if the payment is for an obligation that existed as of the balance sheet date (or an interim date) and whether the obligation was in fact recorded as of the balance sheet date (or interim date)
when is the procedure of examining subsequent payments performed
towards the end of fieldwork
what are the two tests in the test of details of balances
- confirming accounts payable
- reconciling unconfirmed payables to monthly statements received by the client from vendors
there is no ________ made about the confirmation of accounts payable
presumption
is the confirmation of accounts payable optional?
yes
confirmation of AP is recommended when the DR is ______
low
who must control the preparation and mailing of each confirmation
auditors
when auditors choose to send AP confirmations those accounts with ______ or _____ balance should be among the ones selected as they may be more understated
zero; small
the evidence provided for the completeness assertions by the confirmations of AP is _____
limited
what assertions is of primary importance to the auditor in auditing AP
completeness
in a search for unrecorded liabilities the auditor examines ________
subsequent payments between balance sheet date and end of fieldwork, and when related documentation indicates payment was for an obligation in existence at balance sheet date; trace to accounts payable listing
