Chapter 06 - answer.doc - CHAPTER 6 AUDIT OF THE EXPENDITURE CYCLE TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS I 6-1 Transactions in the

Chapter 06 - answer.doc - CHAPTER 6 AUDIT OF THE...

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6-1. Transactions in the expenditure cycle are recorded in the purchases and cash payments journal or in the voucher register and the check register. Relevant accounts are cash; vouchers payable; inventory, property, plant and equipment; purchases; purchase returns and allowances; purchase discounts; prepaid rent and other prepaid accounts; and expense accounts. 6-2. Errors that occur in the expenditure cycle include recording purchases in the wrong period (cutoff errors), recording goods held on consignment as a purchase, misclassifying purchases, failing to record payments, recording payments twice, and failing to recognize prepaid expenses. Irregularities often relate to purchases and include paying for fictitious purchases, purchasing goods for personal use, and obtaining kickbacks. 6-3. Audit objectives for acquisitions transactions are to verify the following assertions: Existence or occurrence : Recorded acquisitions are for items that were acquired. Completeness : Acquisitions that occurred are recorded. Rights and obligations : Recorded acquisitions are the entity’s purchases and liabilities. Valuation or allocation : Acquisitions are recorded for the proper amounts. Presentation and disclosure : Acquisitions are recorded to result in presentation and disclosure in accordance with AFRS. 6-4. The following misstatements could arise if controls for payments are ineffective: Existence or occurrence Unauthorized or inappropriate payments may be made. Completeness Checks may be issued and not recorded. Rights and obligations Unauthorized payments may be made. CHAPTER 6 AUDIT OF THE EXPENDITURE CYCLE: TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS - I
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6-2 Solutions Manual to Accompany Applied Auditing, 2014 Edition Valuation or allocation Improper amounts may be paid because of math errors or incorrect discount. Account may not reconcile or discrepancy may not be disclosed. Presentation and disclosure Payments may be credited to wrong accounts. 6-5. A vendor’s invoice is a bill for a single purchase, whereas the vendor’s monthly statements report the beginning balance, additional sales, any payments, and the ending balance. Auditors reconcile the monthly statements to the details included in the vouchers payable listing to ascertain that all vouchers payable are recorded. Vendors’ statements are generally considered to be a strong form of evidence about amounts owed to particular vendors. 6-6. 1) a 2) b 3) c 6-7. 1) b 2) c 3) c 6-8. 1) d 3) a 5) b 7) c 2) a 4) d 6) a 6-9. 1) b 2) b 3) c 6-10. 1) d 2) a 6-11. 1. a. A purchase requisition, purchase order, receiving report, and vendor’s invoice should be compared and filed in support of each acquisition. b. Examine file of documents. c. Existence 2. a. Receiving reports should be prenumbered and accounted for.
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  • Fall '17
  • Solis
  • Purchase, Purchase order, purchase requisition, Accompany Applied Auditing

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