Question

The following questions are part of an internal control questionnaire for the acquisition and expenditure process. The client has been asked to answer the questions for the acquisition and expenditure process:
a. Are competitive bids received and reviewed for certain items?
b. Are receiving reports prepared for each item received and copies transmitted to the inventory storerooms, the purchasing department, and the accounting department?
c. Are vouchers cancelled with a PAID stamp when paid?
d. Are purchase order forms and receiving report forms prenumbered and the numerical sequence checked for missing documents?
For each question:
(1) Describe the misstatement in the financial statements that could occur if the client answered the question “no.”
(2) Explain how you would design a substantive test to evaluate the potential misstatement in the financial statements due to the missing control.
(3) If the client answers “yes” to the question, describe an internal control that the client could use.
(4) Describe how you could test the internal control described in part (3).



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  • CreatedJanuary 22, 2015
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