Audit

Lecture 7 Auditing the Purchasing Process

Q 11-2

Types of Transaction | Accounts Affected |

Purchase transaction | Accounts payable

Inventory

Purchases or cost of goods sold

Various assets and expenses |

Cash disbursement transaction | Cash

Accounts payable

Cash discounts |

Purchase return transaction | Purchase returns

Purchase allowance

Accounts payable |

Q 11-4

Segregation of Duties | Possible Errors or Fraud Resulting from Conflicts of Duties |

The purchasing function should be segregated from the requisitioning and receiving functions | If one individual is responsible for the requisition, purchasing, and receiving functions, fictitious or unauthorized purchases can be made. This can result in the theft of goods and possibly payment for unauthorized purchases. |

The invoice-processing function should be segregated from the accounts payable function | If one individual is responsible for the invoice-processing and the accounts payable functions, purchase transactions can be processed at the wrong price or terms, or a cash disbursement can be processed for goods and services not received. This can result in overpayment for goods and services or the theft of cash |

The disbursement function should be segregated from the accounts payable function | If one individual is responsible for the disbursement function and also has access to the accounts payable records, unauthorized cheques supported by fictitious documents can be issued, and unauthorized transactions can be recorded. This can result in theft of the entity’s cash. |

The accounts payable function should be segregated from the general ledger function | If one individual is responsible for the accounts payable records and also for the general ledger, that individual can conceal any defalcation that would normally be detected by reconciling subsidiary records with the general ledger control account. |

Q 11-5

Industry Related Factors

When auditing the purchasing process,...