1.

Is the purchasing function performed by personnel who are independent of the

receiving and shipping functions and the payables and disbursing functions?

❖ Transaction-related audit objective: Recorded acquisitions and payments are

for goods and services received, consistent with the best interests of the client
(occurrence).

❖ Test of control: Observe and inquire about personnel performing purchasing,

shipping, payables, and disbursing functions.

❖ Potential misstatement: Goods received and not recorded or recorded and not
received; Disbursements made for goods not received.

❖ Substantive procedure: Vendor statement reconciliation; Review of physical

inventory shortages.

2. Are all receiving reports prenumbered and the numerical sequence checked by
a person independent of check preparation?

❖ Transaction-related audit objective: Existing acquisitions are recorded

(completeness).

❖ Test of control: Account for numerical sequence of receiving reports and

determine that all were recorded.

❖ Potential misstatement: Receiving reports are misplaced and acquisitions not

recorded.

❖ Substantive procedure: Vendor statement reconciliation.

3. Are all vendors' invoices routed directly to accounting from the mailroom?

❖ Transaction-related audit objective: Acquisitions are recorded on the correct

dates (timing); Existing acquisitions are recorded (completeness).

❖ Test of control: Observe and inquire about the procedure performed by the mail
clerk. Compare date mail is received to date accounting received invoices.

❖ Potential misstatement: Late recording or non-recording of liabilities to

suppliers.

❖ Substantive procedure: Vendor statement reconciliation; Search for unrecorded

liabilities.

4. Does the accounts payable clerk match the description and quantities of goods
on the purchase order, receiving report, and vendor's invoice?
 ❖ Transaction-related audit objective: Acquisitions are recorded at the proper
amounts (accuracy).

❖ Test of control: Examine indication of internal verification of quantities.

❖ Potential misstatement: Acquisitions from vendors are recorded at an improper

amount.

❖ Substantive procedure: Verify that quantities invoiced agree with quantities

received and ordered.

5. Does a responsible employee review and approve the invoice account

distribution before the transaction is entered in the computer?

❖ Transaction-related audit objective: Acquisition transactions are properly

classified (classification).

❖ Test of control: Examine indication of approval.

❖ Potential misstatement: Acquisitions are recorded in the wrong account.

❖ Substantive procedure: Examine supporting invoice for reasonableness of

accounting distribution.

6. Are all extensions, footings, discounts, and freight terms on vendors' invoices
checked for accuracy?

❖ Transaction-related audit objective: Acquisitions are recorded at the proper

amounts (accuracy).

❖ Test of control: Examine canceled invoices for indication of checking for clerical
accuracy.

❖ Potential misstatement: Acquisitions from vendors are recorded at an improper

amount.

❖ Substantive procedure: Test extensions, footings, discounts, and freight terms

on vendors’ invoices.

7. Are checks automatically posted in the cash disbursements journal as they are
prepared?

❖ Transaction-related audit objective: Payments are recorded on the correct

dates (timing); Existing payments are recorded (completeness).
 ❖ Test of control: Observe whether the system automatically posts checks when
they are prepared.

❖ Potential misstatement: Checks are disbursed and not recorded or they are
recorded in the wrong time period.

❖ Substantive procedure: Examine checks clearing the bank prior to year-end to

determine that they were recorded in the cash disbursements journal prior to
year-end.

8. Are all supporting documents properly canceled at the time the checks are
signed?

❖ Transaction-related audit objective: Acquisitions are for goods and services

received, consistent with the best interests of the client (occurrence).

❖ Test of control: Examine invoices for which checks have been disbursed to
determine that they have been canceled.

❖ Potential misstatement: Invoices are recorded and paid more than once.

❖ Substantive procedure: Examine vendor statements, noting any unrecorded

payments appearing on the statement.

9. Is the custody of checks after signature and before mailing handled by an

employee independent of all payable, disbursing, cash, and general ledger
functions?

❖ Transaction-related audit objective: Recorded cash disbursements are for

goods and services actually received (occurrence).

❖ Test of control: Observe and inquire about the handling of checks from the time
they are mailed to suppliers.

❖ Potential misstatement: Checks are disbursed and no merchandise is received.

❖ Checks are received by someone other than the supplier for whom they are
intended.

❖ Substantive procedure: Trace checks to supporting invoice and determine

reasonableness of expenditure; Reconcile vendors’ statements.