Chapter 11 - Auditing the Purchasing Process
11-25 a. The flowchart for Kida Company is shown on the following page:
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Chapter 11 - Auditing the Purchasing Process
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Chapter 11 - Auditing the Purchasing Process
b. Kida Company's major internal control weaknesses are:
Purchasing:
 The buyer does not verify that the department head's request is within budget
limitations.
 No procedures have been established to ensure that the best price is obtained.
Large-dollar requisitions should be ordered after receiving quotes and/or sealed
bids.
 Prior to placing an order, the buyer does not determine the adequacy of the
vendor's past record as a supplier to Kida.
Receiving:
 Receiving clerk does not make blind counts for all special equipment or at least for
large-dollar items.
 Written notice of equipment received is not sent to the purchasing department.
 Written notice of equipment received is not sent to accounts payable department.
Accounts Payable:
 The mathematical accuracy of the invoice is not recomputed.
 Invoice quantity is not compared with a report of quantity received.
 Notification of the acceptability of the equipment from the requisitioning
department is not obtained before the payable is recorded.
 No alphabetic file of vendors from which purchases are made is maintained.
Treasurer:
 Documentation supporting the checks is not sent by the accounts payable
Department to the cashier in order for the cashier or treasurer to be assured that the
check is for properly authorized and received equipment.
 Checks for large-dollar purchases are not signed by two officers of Kida Company
to ensure that material expenditures are proper.
 All documentation to support a check is not canceled by the check signer and
returned to the accounts payable department.
 The cashier alone has custody of the key, the signature plate, and record of usage.
 The controller is authorized to sign checks.
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The substantive audit procedures Coltrane should apply to Jang's trade accounts payable
balances include the following:
 Foot the schedule of the trade accounts payable.
 Agree the total of the schedule to the general ledger trial balance.
 Compare a sample of individual account balances from the schedule with the
accounts payable subsidiary ledger.
 Compare a sample of individual account balances from the accounts payable
subsidiary ledger with the schedule.
 Investigate and discuss with management any old or disputed payables.
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Chapter 11 - Auditing the Purchasing Process

Investigate debit balances and, if significant, consider requesting positive
confirmations and propose reclassification of the amounts.
 Review the minutes of the board of directors' meetings and any written agreements
and inquire of key employees as to whether any assets are pledged to collateralize
payables.
 Perform cutoff tests.
 Perform analytical procedures.
Confirm or verify recorded accounts payable balances by:
 Reviewing the voucher register or subsidiary accounts payable ledger and consider
confirming payables for a sample of vendors.
 Requesting a sample of vendors to provide statements of account balances as of the
date selected.
 Investigating and reconciling differences discovered during the confirmation
procedures.
 Testing a sample of unconfirmed balances by examining the related vouchers,
invoices, purchase orders, and receiving reports.
Perform a search for unrecorded liabilities by:
 Examining files of receiving reports unmatched with vendors' invoices and searching
for items received before the balance sheet date but not yet billed or on the schedule.
 Inspecting files of unprocessed invoices, purchase orders, and vendors' statements.
 Reviewing support for the cash disbursements journal, the voucher register, or
canceled checks for disbursements after the balance sheet date to identify
transactions that should have been recorded at the balance sheet date but were not.
 Inquiring of key employees about additional sources of unprocessed invoices or
other trade payables.
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a.
b.
c.
d.
e.
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