Inventory and Accounts Payable Flashcards
What assertion is the auditor testing when tracing purchased items though the AIS, verifying all documentation is matching?
Completeness
What departments and documents are involved when auditing inventory and accounts payable?
Departments
Requesting department purchasing receiving warehouse accounts payable cash disbursements
Documents
purchase requisition purchase order receiving report vendor's invoice accounts payable voucher check
What types of comparisons are most likely when analytical procedures for inventory and accounts payable?
gross profit percentage
inventory turnover
changes in age of average inventory
What some general potential problems in substantive testing for inventory and accounts payable?
inventory damaged/obsolete
inventory miscounted or misidentified
cut-off of purchases, receipts and consumption of inventory incorrect
inventory not owned by client, also could be on consignment
deliberate misstatement of inventory by client
If inventory is intentionally or unintentionally overstated, what effect does that misstatement have on net income for that year?
ending inventory too high. then COGS will be too low. NI will be inflated. misrepresentation of assets and NI.
If inventory is intentionally or unintentionally understated, what effect does that misstatement have on net income for that year?
ending inventory too low. then COGS will be too high. NI will be understated. misrepresentation of ending inventory and NI.
After the purchasing department receives the purchase requisition, what is the next step in the purchasing process?
scan the request to make sure it is within the authority of department making the request
check the authorization signatures
follow set procedure for placing an order
When goods arrive at an entity’s receiving department, what are the appropriate procedures for these entity personnel?
verify the description of the physical goods with the purchase order
count the goods
check the condition of the goods
What happens to goods after they have been accepted by the receiving department?
goods are transferred
check the condition and description and quantity of the items being conveyed
get signed receipt or other sign off
How should an entity’s control of its inventory items be organized?
requisitioning department
receiving
warehouse
shipping
What documents are generated and sent from the vendor after goods are ordered by entity?
order acknowledgement and an invoice
Which department receives the vendor’s invoice, and what actions should be taken with it?
accounts payable
reviewed for terms and informational accuracy
compared to purchase requisition, purchase order and receiving report - all authorizations, all agree
What document is generated once all documents have been reconciled and all authorizations have been verified?
an accounts payable voucher
After receiving the approved voucher, what roles and responsibilities does the cash disbursements department have?
filed by due date, taking into consideration any discount terms
prepare a check
deliver check and voucher package to authorized signer
create check register
A department needs a particular item of inventory or a new asset such as a computer. What document is initially generated when there is need for such items?
a purchase requisition
After a requisition is reviewed and authorized what happens to this requisition form?
transmitted to the purchasing department for fulfillment
After a purchase order is generated where does the purchase order go?
copy goes to the receiving department to serve as approval for accepting the merchandise
another copy goes to the accounts payable as documentation of the purchase
A sample of cleared checks for purchases is taken and support is looked for. What assertion is the auditor testing?
occurrence, completeness, classification and accuracy
An auditor is examining reported inventory balances to determine if freight-in has been properly recognized. What assertion is being testing?
valuation
Does the auditor typically confirm accounts payable?
the auditor is more concerned with completeness rather than existance
An auditor takes a sample of accounts payable recorded during the 3 - 5 days prior to the end of Year 1 and verifies that they were not supposed be reported in Year 2. What assertion(s) is being tested?
occurrence and the cutoff assertions
When a check is prepared to pay an account payable voucher, what exactly takes place within the accounting records?
the check should be supported by the check register or cash disbursements journal
the total is the credit to cash and a debit to accounts payable
An auditor takes a sample of accounts payable recorded during the 3 - 5 days after the end of Year 1 and verifies that they were not supposed be reported in Year 1. What assertion(s) is being tested?
completeness and cutoff
What types of evidence would the auditor look for in the subsequent period in substantiating inventory and accounts payable?
cash payments that indicated year-end liabilities not recorded
receipt of inventory that might have belonged to the company at year-end, but was not recorded
invoices received by the company that might indicate year-end liabilities
Perishable, obsolete, slow-moving and other inventory that fails to sell, which might indicate it should have been written down at year end
