The following procedures are used for EGO Company:
•EGO's purchasing manager approves all purchases above $250. This allows the administrative staff to use the petty cash system to purchase minor items that are needed for the office and the manufacturing plant.
•When a supplier invoice is received, the accounting department matches it to the corresponding purchase invoice and prepares a voucher containing the two documents.
•Vouchers are then reviewed against the outstanding unmatched receiving reports. When the clerk can match a receiving report to a purchase order and a supplier invoice, the voucher is given to the accountant for entry into the purchases journal.
•If there is no receiving report on file, the voucher with supplier invoice and purchase order remains in the unmatched supplier invoice file.
•The purchase order contains a description of the goods, the vendor name, the date of the purchase approval, whether the goods were purchased FOB destination or FOB shipper, and the purchase manager's initials showing her authorization for the purchase.
•When the company receives goods, the receiver prepares a receiving report and forwards it to the accounting department. The accounting department checks the unmatched supplier invoice file, and if there is no corresponding supplier invoice on hand, the receiving report is placed in the unmatched receiving report file.
•The company's accounting system maintains a purchases journal and sub-ledger accounts for all authorized suppliers.
You are conducting an external audit of the company's financial statements and are working at the auditee's office two weeks after year end.
Required
(a) Design a test with two audit procedures, using the unmatched supplier invoice file to test at least one internal control objective. Specify which objective(s) you are testing, which documents and any other financial records you are using besides the unmatched supplier invoice file, and how your test would verify the objective(s). Do not use any analytical procedures.
(b) Design a test with two audit procedures, in addition to sample selection, using the unmatched receiving report file to test at least one internal control objective. Specify which objective(s) you are testing, which documents and any other financial records you are using besides the unmatched receiving report file, and how your test would verify the objective(s). Do not use any analytical procedures.