Auditing II - Chapter 11 Quiz

Cutoff and Assertions

• Tests identify purchases made before year-end recorded after to assure management's cutoff assertion.
• Cutoff assertion ensures transactions are recorded in the correct accounting period.

Accounts Payable Assertion Focus

• In auditing accounts payable, emphasis is on management's assertion of completeness.
• Completeness ensures all liabilities and expenses are recorded.

Receiving Authority

• Authority for accepting incoming goods is based on an approved purchase order.
• A purchase order confirms vendor intent and terms of sale.

Auditor Confirmation Procedures

• Auditor confirmation of accounts payable balances may be unnecessary when reliable external evidence exists.
• Other evidence may include vendor statements and contracts to support account balances.

Purchase Order Responsibilities

• Responsibilities for the purchasing process include:
  • Purchasing department prepares the purchase order.
  • Accounts payable matches documents.
  • Treasurer handles payment.

Vouchers Payable Department Controls

• Not typically performed in the vouchers payable department:
  • Control over mailing checks and remittance advice.
• This activity is often managed in a different department to maintain segregation of duties.

Unrecorded Liabilities Examination

• In searching for unrecorded liabilities, auditors examine receiving reports for items received before year-end but not recorded.
• This helps identify expenses or liabilities that have not yet been recognized in financial statements.

Mailing of Disbursement Checks

• Mailing disbursement checks and remittance advices should be managed by the employee who signs the checks last.
• This helps ensure that the individual finalizing disbursements does not have prior access to supporting documentation.

Internal Control Activities in Vouchers Payable

• Common internal control activities in the vouchers payable department include:
  • Approving vouchers with authorized signatures.
  • Matching invoices with receiving reports.
• Accounting for unused prenumbered purchase orders is not standard in this department.

Cash Disbursement Controls

• In testing cash disbursement controls, auditors find that check signers are also responsible for mailing checks.
• This dual responsibility highlights the need for careful oversight to prevent fraud.

Employee Misconduct Suspicion

• Concerns arise when auditors suspect client employees may be ordering goods for personal use without documentation.
• Such actions can indicate a breakdown in internal controls and potential for unethical behavior.