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QUESTION 1

The following are independent internal control commonly found in the acquisition and payment cycle. Each control is to be considered independently.

1. Before a cheque is prepared to pay for the acquisition by the account payable department, the related purchase order and receiving report is attached to the vendors 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-add 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 initiating the invoice.

2. Before a cheque is approved by the treasurer for issuance, she examines the supporting documentation accompanying the cheque. At that time, she initials each vendors invoice to indicate her approval.
3. After the controller signs the cheques, her secretary writes the cheque number and the date the cheque was issued on the supporting documents to prevent their reuse.
4. At month-end, 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 vendors invoice and acquisitions journal entry. The clerks tests do not include testing the quantity or description of the merchandise received.
5. The cash disbursement 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.

Required:

For each of the internal control, describe the transaction-related audit objective(s) the control is meant to fulfil.

For each control, describe one test of control the auditor could perform to test the effectiveness of the control.

For each control, describe one substantive test the auditor could perform to determine whether financial misstatements are taking place.

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