Chapter 11 - Chapter 11 - Auditing the Purchasing Process...

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11-1 CHAPTER 11 AUDITING THE PURCHASING PROCESS Answers to Multiple-Choice Questions 11-13 c 11-19 c 11-14 c 11-20 d 11-15 b 11-21 c 11-16 d 11-22 c 11-17 b 11-23 a 11-18 b Solutions to Problems 11-24 This is a relatively straightforward analytical procedures problem. Here are some of the concerns the auditor might have about potential misstatements in both accounts: Both inventory and accounts payable have increased significantly in absolute dollar terms from 2008 to 2009. The inventory increase is 69 percent while the accounts payable increase is 28 percent. An auditor would have expected the increase in inventory to be approximately the same as the increase in accounts payable. Based on the auditor’s expectations and the client’s data, the auditor might suspect that there are at least two possible misstatements: (1) inventory is overstated because obsolete and/or slow-moving products have not been written down to fair market value and (2) there are unrecorded accounts payable. Other misstatements are possible. 11-25 The internal control procedures that most likely would provide reasonable assurance that specific control objectives for the financial statement assertions regarding purchases and accounts payable will be achieved are: The purchasing, receiving, and accounts payable functions are segregated. Requisitioning Department : Proper authorization of requisitions by department head is required before purchase orders are prepared. The requisitioning department head independently verifies the quantity and quality of the goods received. Purchasing Department : The purchasing department ensures that requisitions are within budget limits before purchase orders are prepared. The adequacy of each vendor's past record as a supplier is verified.
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This note was uploaded on 10/16/2011 for the course AIM 6334 taught by Professor Chrits during the Spring '11 term at University of Texas at Austin.

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Chapter 11 - Chapter 11 - Auditing the Purchasing Process...

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