Prepare a professional document that addresses the requirements specified in the case. Fully address each requirement and include at least two current references to scholarly and/or authoritative sources. Instructions Specifically you will be required to: Calculate the required ratios for all given years. Identify and explain high inherent risk assertions. Analyze and draw conclusions about the nature and extent of tests of controls. Analyze and draw conclusions about the nature, timing, and extent of substantive procedures. Use at least two current, quality academic or authoritative sources in this assignment. Note: Wikipedia and similar websites do not qualify as quality scholarly and/or authoritative sources. Use the Strayer University Library to conduct your research. The specific course learning outcome associated with this assignment is: Develop conclusions about risks, control tests, and substantive procedures for a given client using analysis and calculations.

Josh Thomas (audit senior) and Suzie Pickering (audit staff) are discussing the audit of the purchasing process for Cloud 9. Cloud 9 products are developed through a collaboration between Cloud 9's product development teams and third-party manufacturers. Purchases from manufacturers represent a material transaction stream, and accounts payable is one of the most significant current liabilities on Cloud 9's balance sheet. As Josh and Suzie plan the audit of the purchasing process, they believe they have a basic understanding of Cloud 9's business processes. However, they still need to address a few key issues before they settle on an audit plan. What are the most significant inherent risks for Cloud 9 in the purchasing process? Do significant fraud risks exist? Are there significant substantive tests that can be performed at an interim date?

Josh and Suzie review what they know about Cloud 9's purchasing function. Cloud 9's product development teams work closely with a variety of manufacturers around the globe. Cloud 9 has been particularly concerned about the quality of manufacturing when choosing manufacturers. Cloud 9's CFO, David Collier, has also expressed concerns about risks inherent in the purchasing function globally. David has had several meetings with accounting staff to raise awareness about the risk of duplicate payment or fictitious vendors. Further, he has placed a top priority on regular screening of the master vendor file to ensure the file is kept current, old vendors are removed from the file, and the file represents an accurate list of current vendors and manufacturers that Cloud 9 does business with. However, Josh points out to Suzie that inherent risk is still high related to the occurrence assertion for purchases and that the quality of Cloud 9's internal control will likely allow for a low control risk assessment. Further, Josh and Suzie are concerned about potential cutoff problems that may lead to unrecorded liabilities; therefore, inherent risk is also assessed as high for the completeness of purchases.

Josh and Suzie are pleased with the results of tests of controls related to the purchasing process. They found strong controls over the master vendor file, and vouchers are prepared based only on original invoices. Cloud 9 is very careful about entering the right invoice number, including any leading zeros, so an invoice is not paid twice. Further, individuals who are responsible for following up on exceptions understood the types of exceptions they were following up on, and exceptions tended to be rare. Finally, under David Collier's direction, Cloud 9 developed clear procedures for accruing payables for goods received in the warehouse for which vendor invoices had not yet arrived.

As Josh and Suzie finalize their plans for substantive tests in the purchasing process, they recognize that a significant number of tests of transactions were accomplished with dual purpose tests for testing controls. With cutoff controls being performed monthly, they decided to test cutoff at interim with a dual-purpose test, plus retesting Cloud 9's internal control and simultaneously performing substantive cutoff procedures at year-end. Josh did not feel that confirmations of payables was an effective procedure. Josh felt the audit team could perform a search for unrecorded liabilities at year-end, rather than performing the procedure at an interim date and performing roll forward tests. Josh felt that performing the search for unrecorded liabilities at year-end would not be overly time-consuming, and it would be good to have evidence as of the balance sheet date.

Answer rating: 100% (QA)

Cloud 9 Purchasing Audit Process The formulation of ratio analysis for Cloud 9 is based on the corporates trial balance for the financial years 2021 and 2022 The ratio analysis is determined in the ta... View the full answer