Acquisitions Substantive Tests of Transactions
Occurrence
Write the substantive audit procedure
Completeness
Write the substantive audit procedure
1. Segregation of the purchasing, receiving and cash payment functions
Occurrence
Recorded acquisitions are for goods and services actually received
Recorded cash disbursements are for goods and services actually received
Completeness
Discuss segregation of duties with personnel and observe activities.
Trace entries in the acquisitions journal to related vendor’s invoices, receiving reports
and purchase orders
Perform a search for unrecorded liabilities
The auditor should also examine open vouchers, receiving reports, vendor’s invoices, and
statements received for a period after year-end as part of the search for unrecorded
liabilities
2. Independent reconciliation of the monthly bank statements
Completeness
Existence cash disbursements are recorded
Accuracy
Recorded cash disbursement transactions are stated at the correct amounts
Proof of Cash Disbursement
Examine file of completed bank reconciliation. The bank statement and bank
reconciliation.
Reconcile recorded cash disbursements with the cash disbursements on the bank
statement
3. Use of prenumbered voucher packages, properly accounted for
Completeness
Existing acquisition transactions are recorded
Account for a sequence of voucher packages.
Trace from a file of vendor’s invoices to the acquisitions journal.
Rights and Obligations
The auditor should review a sample of voucher packages for the presence of the purchase
requisition, purchase order, receiving report and vendor invoice to verify that the
accounts payable are owed by the Pinnacle Manufacturing.
4. Use of prenumbered checks, properly accounted for
Completeness
Existing cash disbursement transactions are recorded
Proof of Cash Disbursement
Account for chronological sequence of checks.
Reconcile recorded cash disbursement with the cash disbursements on the bank statement
5. Use of prenumbered receiving reports, properly accounted for
Completeness
Existing acquisition transactions are recorded
Account for a sequence of receiving reports.
Trace from a file of receiving reports to the acquisitions journal.
6. Internal verification of document package before check preparation
Valuation, Allocation and Accuracy
The auditor should perform the following procedures:
(1) Obtain the accounts payable listing, foot the listing, and agree the listing to the
general ledger.
(2) Obtain a sample of vendor statements and agree the amounts to the vendor accounts.
(3) Review the results of accounts payable confirmations
Existence and Occurrence
(1) Accounts Payable Confirmations (not required)
Accounts payable confirmations are not required because good external evidence to
support accounts payable may be sent when internal control is weak, when there are
disputed amounts, or when monthly vendor statements are not available. Typically,
vendors with small or zero balances would be selected for confirmation.
7. Review of supporting documents and signing of checks by an independent, authorized
person
The following substantive tests may also be performed as tests of controls or dualpurpose tests.
a. Completeness
The auditor should trace a sample of vouchers to the purchase journal
b. Cut-off
The auditor should compare dates on a sample of vouchers with the dates the transactions
were recorded in the purchase journal. The auditor should also examine purchases before
and after year-end to determine if they were recorded in the proper period.
c. Valuation, Allocation and Accuracy
The auditor should recomputed the mathematical accuracy of a sample of vendor
invoices.
d. Existence and Occurrence
The auditor should test a sample of vouchers for authorization and the presence of the
receiving report.
e. Understandability and Classification
The auditor should verify the account classification of a sample of purchases.
8. Cancellation of documents prior to signing of the check
Substantive Procedures Related to the Expenditure cycle
a. Completeness
The receiving report and vendor’s invoice should be stamped as “Paid” as a way of
canceling the document so that the voucher package will not be presented again for
payment. This procedure will prevent double payment of an invoice.
9. Monthly reconciliation of the accounts payable master file with the general ledger
Completeness, Valuation and Allocation, Existence
The primary audit procedures performed to test the existence, completeness and valuation
of the ending cash balance are the bank confirmation and the audit of the year-end bank
reconciliation.