In: Accounting
Requirements c. and d. For each of the? questions, identify the nature of the potential financial? misstatement(s) if the control is not in effect. For each of the potential? misstatements, identify a substantive audit procedure that can be used to determine whether a material misstatement exists.
Begin by identifying the potential? misstatement(s), then identify the substantive audit? procedure(s) that can be used to determine whether a material misstatement exists.
Match each question with the corresponding roman numeral or numerals? (from the list? below) that correlates to the appropriate potential? misstatement(s).
Potential Misstatements
I. |
Invoices are recorded and paid more than once. |
II. |
Goods received and not recorded or recorded and not received. |
III. |
Acquisitions from vendors are recorded at improper amounts. |
IV. |
Checks are disbursed and not recorded or they are recorded in the wrong time period. |
V. |
Receiving reports are misplaced and acquisitions not recorded. |
VI. |
Acquisitions are recorded in the wrong account. |
VII. |
Checks are disbursed and no merchandise is received. |
VIII. |
Disbursements made for goods not received. |
IX. |
Checks are received by someone other than the supplier for whom they are intended. |
X. |
Late recording or? non-recording of liabilities to suppliers. |
Substantive Procedures
1. |
Search for unrecorded liabilities. |
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2. |
Examine checks clearing the bank prior to? year-end to determine that they were recorded in the cash disbursements journal prior to? year-end. |
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3. |
Examine supporting invoice for reasonableness of accounting distribution. |
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4. |
Examine vendor? statements, noting any unrecorded payments appearing on the statement. |
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5. |
Review of physical inventory shortages. |
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6. |
Trace checks to supporting invoice and determine reasonableness of expenditure. Reconcile? vendors' statements. |
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7. |
Vendor statement reconciliation. |
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8. |
Test? extensions, footings,? discounts, and freight terms on? vendors' invoices. |
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Question |
Potential Misstatement(s) Substantive Procedure(s) |
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1. |
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2. |
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3. |
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4. |
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5. |
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6. |
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7. |
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8. |
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Q. No. |
Potential Misstatements |
Substantive Procedures |
I.Invoices are recorded and paid more than once. | (6) Trace checks to supporting invoice and
determine reasonableness of expenditure. Reconcile? vendors'
statements. (7) Vendor statement reconciliation. |
|
II.Goods received and not recorded or recorded and not received. | (4) Examine vendor? statements, noting any
unrecorded payments appearing on the statement. (1) Search for unrecorded liabilities. (7) Vendor statement reconciliation. |
|
III.Acquisitions from vendors are recorded at improper amounts. | (7) Vendor statement reconciliation. (3) Examine supporting invoice for reasonableness of accounting distribution. (8) Test? extensions, footings,? discounts, and freight terms on? vendors' invoices. |
|
IV.Checks are disbursed and not recorded or they are recorded in the wrong time period. | (2) Examine checks clearing the bank prior
to? year-end to determine that they were recorded in the cash
disbursements journal prior to? year-end. (6) Trace checks to supporting invoice and determine reasonableness of expenditure. Reconcile? vendors' statements. |
|
V.Receiving reports are misplaced and acquisitions not recorded. | (1) Search for unrecorded liabilities. | |
VI.Acquisitions are recorded in the wrong account. | (7) Vendor statement reconciliation. | |
VII.Checks are disbursed and no merchandise is received. | (5) Review of physical inventory
shortages. (6) Trace checks to supporting invoice and determine reasonableness of expenditure. Reconcile? vendors' statements. |
|
VIII.Disbursements made for goods not received. | (6) Trace checks to supporting invoice and determine reasonableness of expenditure. Reconcile? vendors' statements. | |
IX.Checks are received by someone other than the supplier for whom they are intended. | (6) Trace checks to supporting invoice and determine reasonableness of expenditure. Reconcile? vendors' statements. | |
X.Late recording or? non-recording of liabilities to suppliers. | (1) Search for unrecorded
liabilities. (7) Vendor statement reconciliation. |