This document outlines controls and tests of controls for purchase transactions. It lists assertions that could lead to misstatements, examples of control activities to prevent errors, and examples of how to test that the controls are working properly. The four key assertions are occurrence, completeness, authorization, and accuracy. Control activities include segregation of duties, approval processes, matching of documents, and reconciliation of records. Tests of controls involve steps like observing duties, examining approvals, agreeing information between documents, and checking reconciliations. The goal is to help ensure purchase transactions are valid, fully recorded, properly authorized, and accurately processed.
This document outlines controls and tests of controls for purchase transactions. It lists assertions that could lead to misstatements, examples of control activities to prevent errors, and examples of how to test that the controls are working properly. The four key assertions are occurrence, completeness, authorization, and accuracy. Control activities include segregation of duties, approval processes, matching of documents, and reconciliation of records. Tests of controls involve steps like observing duties, examining approvals, agreeing information between documents, and checking reconciliations. The goal is to help ensure purchase transactions are valid, fully recorded, properly authorized, and accurately processed.
This document outlines controls and tests of controls for purchase transactions. It lists assertions that could lead to misstatements, examples of control activities to prevent errors, and examples of how to test that the controls are working properly. The four key assertions are occurrence, completeness, authorization, and accuracy. Control activities include segregation of duties, approval processes, matching of documents, and reconciliation of records. Tests of controls involve steps like observing duties, examining approvals, agreeing information between documents, and checking reconciliations. The goal is to help ensure purchase transactions are valid, fully recorded, properly authorized, and accurately processed.
Summary of Assertions, Possible Misstatements, Control Activities and Test of Controls for Purchase Transactions
Assertion Possible Misstatement Control Activity Test of Controls
Occurrence Purchase recorded Segregation of Observe and goods or services duties. evaluate proper not ordered or segregation of received. duties. Purchase not Test a sample of recorded without vouchers for the approved purchase presence of an order and receiving authorized report. purchase order and receiving report; if IT application, examine application controls. Accounting for Review and test numerical sequence client procedures of receiving reports for accounting for and vouchers. numerical sequence of receiving reports and vouchers; if IT application, examine application controls. Cancellation of Examine paid documents. vouchers and supporting documents for indication of cancellation. Completeness Purchase made but Accounting for Review clients not recorded. numerical sequence procedures for of purchase orders, accounting for receiving reports, numerical sequence and vouchers. of purchase orders, receiving reports, and vouchers; if IT application, examine application controls. Receiving reports Trace a sample of matched to vendor receiving reports to invoices and their respective entered in the vendor invoices and purchases journal. vouchers. Trace a sample of vouchers to the purchases journal. Assertion Possible Misstatement Control Activity Test of Controls Authorization Purchase of goods Approval of Review clients or services not acquisitions monetary limits authorized. consistent with the authorization for clients acquisitions. authorization monetary limits. Approved purchase Examine purchase requisition and requisitions or purchase order. purchase orders for proper approval; if IT is used for automatic ordering, examine application controls. Purchase of goods Competitive Review clients or services at bidding procedures competitive bidding unauthorized prices followed. procedures. or on unauthorized terms. Accuracy Vendor invoice Mathematical Recompute the improperly priced accuracy of vendor mathematical or incorrectly invoice verified. accuracy of vendor calculated. invoice. Purchase order Agree the agreed to receiving information on a report and vendors sample of voucher invoice for product, packets for product, quantity and price. quantity and price.
Purchase Vouchers Examine
transactions not reconciled to daily reconciliation of posted to the accounts payable vouchers to daily purchases journal listing. accounts payable or the accounts report; if IT payable subsidiary application, records. examine application controls.
Amounts from Daily postings to Examine
purchases journal purchases journal reconciliation of not posted reconciled with entries in purchases correctly to the postings to journal with entries general ledger. accounts payable to accounts payable subsidiary records. subsidiary records; if IT application, examine application controls. Voucher register or Review accounts payable reconciliation of subsidiary records subsidiary records reconciled to to general ledger general ledger control account; if control account. IT application, examine application controls. Vouchers Test a sample of reconciled to daily daily accounts payable reconciliations. listing. Cutoff Purchase All receiving reports Compare the dates transactions forwarded to the in the receiving recorded in the account payable reports with the wrong period. department daily. dates on the relevant vouchers. Existence of Compare the dates procedures that on vouchers with require recording the dates they were the purchases as recorded in the soon as possible purchases journal. after goods or services are received. Classification Purchase Chart of Accounts Review purchases transaction not journal and general properly classified. ledger for reasonableness. Independent Examine a sample approval and of vouchers for review of accounts proper charged for classification. acquisitions. Summary of Assertions, Possible Misstatements, Control Activities and Test of Controls for Cash Disbursement Transactions
Assertion Possible Misstatement Control Activity Test of Controls
Occurrence Cash disbursement Segregation of Observe and recorded but not duties. evaluate proper made. segregation of duties. Vendor statements Review clients independently procedures for reviewed and reconciling vendor reconciled to statements. accounts payable records. Bank reconciliations Review bank prepared and reconciliations for reviewed regularly. indication of independent review. Completeness Cash disbursement Segregation of Observe and made but not duties. evaluate proper recorded. segregation of duties. Management Examine and test reviews listing of indication of cash disbursement management prior to release. reviews listing of cash disbursements. Daily cash Review clients disbursements procedures for reconciled to reconciling daily postings to cash disbursements accounts payable with postings to subsidiary records. accounts payable subsidiary records; if IT applications, test application controls. Authorization Cash disbursement Segregation of Evaluate not authorized. duties. segregation of duties. Electronic cash Examine indication disbursements of approval on transfers and voucher packet. cheques prepared only after all source documents have been independently approved. Individuals who Review and test make electronic clients procedures cash disbursements for authorization. transfers and issue cheques are authorized to do so. Accuracy Cash disbursement Daily cash Review recorded at disbursement reconciliation. incorrect amount. report reconciled to electronic cash disbursements transfers performed and cheques issued. Vendor statements Review reconciled to reconciliation. accounts payable and independently reviewed. Bank statements Review bank regularly reconciled reconciliations. and independently reviewed. Cash disbursement Vendor statements Review posted to the reconciled and reconciliations. wrong vendor independently account. reviewed. Cash disbursements Monthly cash Review postings journal not disbursements from cash summarized journal agreed to disbursements properly or not general ledger journal to the properly posted to postings. general ledger. general ledger Accounts payable Review accounts. subsidiary records reconciliation. reconciled to general ledger control account. Cutoff Cash disbursement Reconciliation of Review recorded in wrong electronic funds reconciliations. period. transfer and cheques issued with postings to the cash disbursements journal and accounts payable subsidiary records. Classification Cash disbursement Chart of accounts. Review cash charged to wrong disbursements account. journal for reasonableness of account distribution. Independent Review general approval and ledger account code review of general on voucher packet ledger account on for reasonableness. voucher packet. Summar of Assertions and related tests of transactions, Account Balances and Disclosures- Accounts Payable and Accrued Expenses
Assertions about Classes of Transactions Substantive Test of Transactions
Occurrence Test a sample of vouchers for the presence of an authorized purchase order and receiving report. Completeness Tracing a sample of vouchers to the purchases journal. Authorization Test a sample of purchase requisition for proper authorization. Accuracy Recompute the mathematical accuracy of sample vendors invoices. Cutoff Compare dates on a sample of vouchers with the dates transactions were recorded in the purchases journal. Classification Verify classification of charges for a sample of purchases transactions. Assertions about Account Balances Test of Details of Account Balances Existence Vouch selected amounts from the accounts payable listing and schedules for accruals to voucher packet or other supporting documentation. Obtain selected vendors statements and reconcile to vendor accounts. Confirmation of selected accounts payable. Rights and Obligations Review voucher packets for presence of purchase requisition, purchase order, receiving report and vendor invoice. Completeness Obtain listing of accounts payable and agree total to general ledger. Valuation and Allocation Obtain listing of accounts payable and account analysis schedules for accruals; foot listing and schedules and agree totals to general ledger. Trace selected items from the accounts payable listing to the subsidiary records and voucher packets. Review results of confirmations of selected accounts payable. Obtain selected vendors statements and reconcile to vendor accounts. Assertions about Presentation and Disclosure Tests of Details of Disclosures Occurrence and rights and obligation Inquire about accounts payable and accrued expenses to ensure that they are properly disclosed. Completeness Complete financial reporting checklist to ensure that all financial statement disclosures related to accounts payable and accrued expenses have been disclosed. Classification and understandability Review of listing of accounts payable for material debits, long-term payables and non-trade payables. Determine whether such items require separate disclosure on the balance sheet. Read notes to ensure that required disclosures are understandable. Accuracy and valuation Read notes and other information to ensure that the information is accurate and properly presented at the appropriate amounts.