A

TEAM

CHAPTER 11 AUDITING THE PURCHASING PROCESS

ASTY CHAERUNNISA
IRANA HERTININGTYAS
MUTHIA ULFAH DWIRAHMA
RAFAEL PINTO RAYNANDA
REGINA WIJAYA

LO 7 (11-5)

List 2 inherent risk factors that that directly

affect the purchasing process. Why should
auditors be concerned about issues such as the
supply of raw materias ad the volatility of
prices?
Two inherent
risk factors that
Industry Related Factors
directly affect the purchasing
process are
1) industry-related factors
2) misstatements detected in
prior audits.
Misstatements detected in prior
audits.
The presence of misstatements in
previous audits is a good indicator that
misstatements are likely to be present
during the current audit. If
misstatements were present in previous
audits, the auditor should assess
inherent risk to be high.

If the entity deals with a large number of vendors

and prices tend to be relatively stable, there is
less risk that the entitys operations will be
affected by raw-material shortages or that
production costs will be difficult to control.
However, if an entity is dependent on a single
vendor to supply a critical component and the
vendor is unable to provide the component, the
entity may suffer production shortages and
shipping delays that significantly affect financial
performance.
Additionally, industries that use commodities
such as oil, coal and precious metals may be
subject to both shortages and price instability
that significantly affect their financial results.

LO 13 (11-9)

List the procedures an auditor might use to

search for unrecorded liabilities

Inquiry of management about control activities used to identify

unrecorded liabilities and accruals at the end of an accounting
period.
Obtain copies of vendors monthly statements and reconcile the
amount to clients accounts payable records.
Confirm vendor accounts, including accounts with small or zero
balances.
Vouch large monetary items from the purchases journal and cash
disbursements journal for a limited time after year-end; examine
the dates on each receiving report or vendors invoice to
determine if the liability relates to the current audit period.
Examine the files of unmatched purchase orders, receiving reports
and vendor invoices for any unrecorded liabilities.

LO 14 (11-11)

What are the differences between accounts

receivable and accounts payable confirmations?

Accounts Receivable
Confirmations

Accounts Payable
Confirmations

1. Used most frequently by

auditors

used less frequently by

auditors

2. primarily provide
information on validity

primarily provide evidence on

completeness

3. Both positive and negative

confirmations

When confirming accounts

payable, generally use a form
of positive confirmation
referred to as a blank or zerobalance confirmation.

4. sent at both dates.

generally mailed at year-end

rather than at an interim date
because of the auditors
concerns about unrecorded

LO 11 (11-12)

Prepare a list of possible concerns that you

might have about potential misstatements in
both accounts
Summer Manufacturing
Internal Control Questionnaire
Purchase

Questions
1. Are there written purchasing policies and procedures?
2. Are purchase requisitions approved in accordance with managements
authorization?
3. Are purchases made from approved vendors?
4. Are price quotations requested for purchases over an established amount?
5. Are purchase commitments documented on written purchase order forms?
6. Do purchase orders include adequate descriptions, terms and instructions?
7. Are purchase orders approved by authorized personnel before issuance?
8. Are pre-numbered purchase order forms periodically accounted for?
9. Is a detailed listing of purchase orders maintained?

Yes

No

 LO 12, 13 (1118)

For each of 6 items provided in the table above, consider

whether there is evidence of proper cut-off of payables and
accruals. If the item is not properly recorded, prepare the
necessary adjusting entries at 31 December 2009, not
properly recorded. Prepare the necessary adjusting entries.

a. Raw material inventory 29,875

Cash (A/R) 29,875
The transaction is already record in a proper period
b. We paid in advance so in should not recognize as
expense yet. Because its still an asset. But the
period is right.
Consulting expense 45,000
Cash(A/P) 45,000
Cash(A/P) 30,000
Consulting Exp.30,000
Prepaid Exp. 30,000
Cash (A/P) 30,000

c. Work in Process 205,000

Raw material inventory 205,000
The date of receiving report is 31/12 while the
purchasing was arround that date too because the
Receiving report number is 49744. So, the transaction
is recorded in the proper period.
d. Do not include in 2009. Include in the next period.

e. The transaction recorded in the wrong period

beacuse the existence of procedures that require
recording the puurchase as soon as possible after
goods or service are received.
WIP
42000
Raw Material
42000

f. Cash(A/P) 32,450
Telephone expense 32,450
(reverse journal on Jan 2010)
Dec 2009 Telephone expense 32,450
Cash(A/P) 32,450
suppose the journal was record in december
2009 instead of january 2010. so we have
to reverse the journal from january 2010 to
make a proper period of journal entry.