Audit Chapter 12

Basic Purchases/Payables Process Steps

1. Authorizing purchases

2. Receiving goods

3. Recording purchases

4. Paying liability

5. Reconciliation and control

What is occurrence in purchases/AP?

The verification that all recorded transactions actually happened and are legitimate for the entity

What is completeness in purchases/AP?

Ensuring all transactions that should be recorded are included and no transactions are missing

What is authorization in purchases/AP?

Validation that transactions are properly approved and comply with company purchasing policies

What is accuracy in purchases/AP?

Verification of correct recording of amounts, measurements, and transaction details

What is cutoff in purchases/AP?

Confirmation that transaction are recorded in the correct accounting period

What is classification in purchases/AP?

Ensuring transactions are posted to the correct accounts and expenses are properly categorized

What is presentation in purchases/AP?

Verification that financial statement disclosures are clear, understandable, and relevant

What is ERS?

A highly automated business process for electronic data exchange and purchase transaction execution between suppliers and purchasers

What are the three key documents in ERS?

Purchase return authorization, shipping report, and debit memo

How to test accrued liabilities?

Check supporting documentation, verify calculations/estimates, and consider using specialists when necessary

What is a search for unrecorded liabilities?

Procedures to detect significant unrecorded obligations as of the balance sheet date

Which assertion does search for unrecorded liabilities test?

Completeness assertion for accounts payable

Steps for unrecorded liabilities search

1. Review post-balance sheet payments

2. Examine supporting documents

3. Verify correct period recording

4. Review open invoices

Purchase Return Authorization

A form showing description, quantity, and data for goods authorized by vendor for return

Shipping Report

A document showing kinds and quantities of goods shipped to vendor

Debit Memo

A form stating particulars of accounts payable debits, including items returned, prices, and amounts debited