In: Accounting
Question 2
a) Questions 1 through 8 are typical internal control
questionnaires used for purchases and
payment cycle.
1. Do personnel who are independent of the receiving and shipping
functions and the
payables and disbursing functions perform the purchasing
function?
2. Are all receiving reports pre-numbered and the numerical
sequence checked by a
person independent of cheque preparation?
3. Does the mailroom route all vendors' invoices directly
to accounting department?
4. Does a responsible employee review and approve the invoice
account distribution
before the transaction is entered in the computer?
5. Are all extensions, discounts, and freight terms on
vendors' invoices check for
accuracy?
6. Are cheques automatically posted in the cash disbursements
journal as they are
prepare
7. Are all supporting documents properly cancelled at the time the
cheques are signed.
8. Is the custody of checks after signature and before mailing
handled by an employee
independent of all payable, disbursing, cash, and general ledger
functions?
Required
Select any Five (5) out of the above eight (8) internal control
questions, and
i. Identify the nature of the potential financial misstatements 5
marks
ii. Recommend a substantive test for transaction to detect the
material misstatement
identified. 10 marks
Question (serial number) | (i) Nature of potential financial misstatements | (ii) Substantive test procedure |
1 | Goods received and not recorded or recorded and not
received. Disbursements made for goods not received. |
Vendor statement reconciliation. Review of physical inventory shortages |
2 | Receiving reports are misplaced and acquisitions not recorded. | Vendor statement reconciliation |
3 | Late recording or non-recording of liabilities to suppliers. | Vendor statement reconciliation. Search for unrecorded liabilities. |
4 | Acquisitions are recorded in the wrong account. | Examine supporting invoice for reasonableness of accounting distribution. |
5 | Acquisitions from vendors are recorded at improper amounts. | Test extensions, footings, discounts, and freight terms on vendors' invoices. |
6 | Checks are disbursed and not recorded or they are recorded in the wrong time period. | Examine checks clearing the bank prior to year-end to determine that they were recorded in the cash disbursements journal prior to year-end. |
7 | Invoices are recorded and paid more than once. | Examine vendor statements, noting any unrecorded payments appearing on the statement. |
8 | Checks are disbursed and no merchandise is received. Checks are received by someone other than the supplier for whom they are intended. | Trace checks to supporting invoice and determine reasonableness of expenditure. Reconcile vendors' statements. |