[OneStepAwayCPA]

An auditor traced a sample of purchase orders and the related receiving reports to the purchase journals and the cash disbursement journal. The purpose of this substantive audit procedure most likely was to:

a) verify cash disbursements were for goods actually received

b) determine that purchases were properly recorded.

c) identify unusally large purchases that should be investigated further

d) test whether payments were for goods actually ordered

Answer is B, but why not A? Is saids the in problem that all these reports were traced to the cash disbursement journal, therefore this should verify cash disbursements were goods actually received, right?

[mla1169]

Well I think there are a couple of reasons.

The first is that if you were trying to verify the cash disbursements, you likely would not start with the purchase orders and trace forward, because if a cash disbursement was made without authorization there likely would never have been a purchase order so discrepancies would be less likely to be picked up by the auditor.

The second is that not all cash disbursements are for goods received, and not all disbursements require a PO (lots of companies dont use Purchase orders for utilities, rents, etc), and other than that there would be no receiving report use to trace forwawrd for authorized payments of services, contracts, etc.

I think to verify cash disbursements you would go backwards starting with the disbursement itself.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[rknight21]

not to take away from what mla said but in short when you go from the source document to the accounting record(tracing), you are checking for completeness..so checking to see that everything is in order and was recorded is checking that the process was complted….. it can only be choice A if they had started at the end, accounting records, and when backwards (vouching) to the source document. In that case you are checking the existence of the info. recorded in the system.

[ahsq]

quick question:

which financial statement assertion is violated when an expense occuring in one year is not recorded until the following year?

a accuracy
b classification
c completeness
d occurrence

[Author]

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