The following statements are typically found in a questionnaires used by auditors to obtain an understanding of internal control in the acquisition and payment cycle. In using the questionnaire for a client, a "yes" response to a question indicates a possible internal control, whereas a "no" indicates a potential deficiency.
a. For each of the questions, state the transaction-related audit objective(s) being fulfilled if the control is in effect.
b. For each internal control, list a test of control to test its effectiveness.
c. For each of the questions, identify the nature of the potential financial misstatement(s) if the control is not in effect.
d. For each of the potential misstatements in part c, list a substantive audit procedure that can be used to determine whether a material misstatement exists.
1. Is the purchasing function performed by personnel who are independent of the receiving and shipping functions and the payables and disbursing functions?
2. Are all vendors' invoices routed directly to accounting from the mailroom?
3. Are all receiving reports renumbered and the numerical sequence checked by a person independent of check preparation?
4. Are all extensions, footing, discounts, and freight terms on vendors' invoices checked for accuracy?
5. Does a responsible employee review and approve the invoice account distribution before the transaction is entered in the computer?
6. Are checks automatically posted in the cash disbursements journal as they are prepared?
7. AR3e all supporting documents properly cancelled at the time the checks 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?