The following are independent internal controls commonly found in the acquisition and payment cycle. Each control is to be considered independently.
1. At the end of each month, an accounting clerk accounts for all prenumbered receiving reports (documents evidencing the receipt of goods) issued during the month, and traces each one to the related vendor’s invoice and acquisitions journal entry. The clerk’s tests do not include testing the quantity or description of the merchandise received.
2. The cash disbursements clerk is prohibited from handling cash. The bank account is reconciled by another person even though the clerk has sufficient expertise and time to do it.
3. Before a check is prepared to pay for acquisitions by the accounts payable department, the related purchase order and receiving report are attached to the vendor’s invoice being paid. A clerk compares the quantity on the invoice with the receiving report and purchase order, compares the price with the purchase order, recomputes the extensions, re-adds the total, and examines the account number indicated on the invoice to determine whether it is correctly classified. He indicates his performance of these procedures by initialing the invoice.
4. Before a check is signed by the controller, she examines the supporting documentation accompanying the check. At that time, she initials each vendor’s invoice to indicate her approval.
5. After the controller signs the checks, her secretary writes the check number and the date the check was issued on each of the supporting documents to prevent their reuse.
Required
a. For each of the internal controls, state the transaction-related audit objective(s) the control is meant to fulfill.
b. For each control, list one test of control the auditor could perform to test the effectiveness of the control.
c. For each control, list one substantive test the auditor could perform to determine whether financial misstatements are actually taking place.
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