Understanding Internal Control/Assessing Control Risk - Wiley

Question 1

Which documents need to be present before payment is approved?

Answer 1

Purchase order, receiving report, vendor’s invoice.

showing order, receipt, and bill for goods

Question 2

How can a firm prevent duplicate payments made on duplicate invoices?

Answer 2

Cancel the required supporting documents (purchase order, receiving report, vendor invoice) after the invoice is paid the first time.

Question 3

What audit test could be used to determine whether recorded purchases represent valid business expenses?

Answer 3

Compare samples of recorded disbursements w/properly approved purchase orders, purchase requisition, vendor’s invoices, and receiving reports.

Question 4

What audit procedure would test whether actual purchases are recorded?

Answer 4

Sample purchase requisitions and agree them to the purchase orders and then to the purchases journal (and subsequent general ledger posting)

Question 5

Should there be a purchase order for each purchase requisition?

Answer 5

No, several requisitions may be summarized on one purchase order and some requisitions may not be approved.