Professional Documents
Culture Documents
Chapter Eleven
Auditing the Purchasing Process
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McGrawHill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
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McGrawHill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
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Purchase
Input order
program
Receiving Review
Goods report account
received, distribution
counted, and
Vendor
inspected Voucher
invoice
packet
Enter vendor,
Receiving
quantity, and To IT
report (RR) Input
PO #
Error From IT
Daily correction
receiving log
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Open PO report
A/P expense
Accounts
Input Weekly Monthly distribution report
from A/P
payable Monthly A/P reporting
reports Voucher register
update
Daily Cash disbursements
A/P listing journal
Report Error
to A/P report Cash
Daily
disbursement General
report ledger
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Cash
disbursement
Checks Checks
report
Input To Vendors
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Industry-Related Factors
2.
1.
How volatile are
Is the supply of raw
raw material
materials adequate
prices
?
?
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Planning
Planning and
and performing
performing tests
tests of
of controls
controls of
of
purchase
purchase transactions.
transactions.
Setting
Setting and
and documenting
documenting the
the control
control risk
risk for
for the
the
purchasing
purchasing process.
process.
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The
The major
major audit
audit concern
concern is is that
that aa cash
cash disbursement
disbursement
is
is made
made but
but not
not recorded
recorded in in the
the records.
records. The
The auditor
auditor
should
should account
account forfor the
the numerical
numerical sequence
sequence of
of
checks
checks and
and reconcile
reconcile the
the daily
daily cash
cash disbursements
disbursements
with
with posting
posting to
to the
the accounts
accounts payable
payable subsidiary
subsidiary
records.
records.
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The
The auditor
auditor is
is concerned
concerned thatthat aa cash
cash disbursement
disbursement
may
may bebe charged
charged to to the
the wrong
wrong general
general ledger
ledger account.
account.
The
The use
use ofof aa chart
chart of
of accounts,
accounts, as as well
well as
as
independent
independent approval
approval and and review
review ofof the
the account
account code
code
on
on the
the voucher
voucher should
should provide
provide adequate
adequate control.
control.
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IfIf the
the results
results ofof the
the tests
tests of
of controls
controls support
support the the
achieved
achieved level level of
of control
control risk,
risk, the
the auditor
auditor conducts
conducts
substantive
substantive procedures
procedures at at the
the planned
planned level.
level. IfIf the
the
results
results do do notnot support
support the
the achieved
achieved level
level of
of control
control
risk,
risk, the
the auditor
auditor reduces
reduces the
the detection
detection risk,
risk, which
which
will
will increase
increase substantive
substantive procedures.
procedures.
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McGrawHill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
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McGrawHill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
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McGrawHill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
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McGrawHill/Irwin Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
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Dependence
Dependence on on aa single
single
Short-
Short- and
and long-term
long-term vendor
vendor or
or aa small
small number
number
payables.
payables. of
of vendors.
vendors.
Long-term
Long-term purchase
purchase
contracts, Costs
Costs by
by reportable
reportable
contracts, including
including any
any
unusual segment
segment of
of the
the business.
business.
unusual purchase
purchase
commitments.
commitments.
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Accounts
Accounts payable
payable confirmations
confirmations are are used
used less
less
often
often than
than accounts
accounts receivable
receivable confirmations.
confirmations. The
The
auditor
auditor is
is able
able to
to examine
examine externally
externally created
created
source
source documents
documents relating
relating toto accounts
accounts payable.
payable.
When
When confirmations
confirmations are are used
used they
they are
are usually
usually
positive
positive and
and referred
referred toto as
as blank
blank confirmations
confirmations.. The
The
vendor
vendor isis asked
asked toto supply
supply the
the balance
balance owed
owed byby the
the
client.
client.
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All
All identified
identified misstatements
misstatements shouldshould be be aggregated.
aggregated.
The
The likely
likely misstatement
misstatement is is then
then compared
compared to to
tolerable
tolerable misstatement.
misstatement. IfIf the
the likely
likely misstatement
misstatement is is
less
less than
than the
the tolerable
tolerable misstatement,
misstatement, the the auditor
auditor has
has
evidence
evidence that
that the
the account
account is is fairly
fairly presented.
presented.
Conversely,
Conversely, itit the
the likely
likely misstatement
misstatement exceedsexceeds the
the
tolerable,
tolerable, the
the auditor
auditor should
should conclude
conclude that
that the
the
account
account is is not
not fairly
fairly presented.
presented.
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End of Chapter 11
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