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TABLE OF CONTENTS

Cash Receipts Transactions

Valuation/ Measurement
Presentation and Disclosure
Purchases Transaction

Existence/ Occurrence
Completeness
Rights and Obligation
Valuation / Measurement
Presentation and Disclosure
Cash Payments Transactions

Existence/ Occurrence
Completeness
Rights and Obligation
Valuation / Measurement
Presentation and Disclosure
Payroll Transactions

Existence/Occurrence
Completeness
Rights and Obligation
Multiple Choices

Assertions and Controls

Potential Misstatement

Audit Procedures
Test of Controls

A customer may be given


credit for an amount greater
than payment.

For a sample of entries in cash


receipts journal, examine
remittance advices.

II. Cash Receipts


Transactions
E. Valuation /
F. Measurement:
Cash receipts are recorded at
the amount received.

A responsible person approves A customer may take a larger


cash discounts taken.
discount than appropriate.
G. Presentation and
disclosure:
A supervisor approves
account classification made in
journalizing

For a sample of entries in cash


receipts journal, examine
remittance advices for
approval of discount taken.

Entries may be made to wrong Observe procedure. Examine


accounts.
approvals by supervisor.

III. Purchases Transactions


A. Existence /
B. Occurrence
Approval of acquisitions is
evidenced by signature on the
purchase order.

Purchases that did not occur


may be recorded.

Examine approval signature.

A purchase requisition,
purchase order, receiving
report, and vendor's invoice
are filed in support of each
acquisition.

Purchases that did not occur


may be recorded.

Observe procedure or
examine file of documents.

Documents are cancelled so


they cannot be reused.

Documents may be reused and Examine cancellations on


acquisitions may be recorded
documents
twice.

C. Completeness:
Receiving reports are
prenumbered and accounted
for.

Vouchers are prenumbered

Purchases may be unrecorded.

Observe procedure. Account


for a numerical sequence.

Purchases may be unrecorded.

Observe procedure. Account


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and accounted for.


D. Rights and obligations:
Receiving reports are
prepared by persons having
access only to a blind copy of
purchase order details.
Consigned goods are readily
identified.
E. Valuation /
F. Measurement:
Invoice amounts are verified
by reference to purchase
orders and receiving reports,
and mathematics on invoice
are rechecked.
G. Presentation and
disclosure:
Chart of accounts adequately
describes accounts to be
debited. Account coding is
assigned by one person and
checked by another.
IV. Cash Payments
Transactions
A. Existence /
B. Occurrence:
Authorized individual signs
and promptly mails checks
after reviewing
documentation.
A review is made by a person
for handling disbursements to
determine that checks are
processed on a timely basis.

for a numerical sequence.


Purchases that are not
legitimate business purchases
may be recorded and paid, or
consigned goods may be
recorded as purchase.

Observe procedure.

Client could overpay for


goods or services.

Examine voucher for


signature indicating
performance.

Purchases may be charged to


wrong accounts.

Examine chart of accounts.


Examine signature of
employee performing check.

Checks may be written but not Observe procedure. Examine


issued or released.
documents.

Checks may be written but not Observe procedure. Inquire


issued or released.
about procedures being
followed.

C. Completeness
Checks are pre numbered and
accounted for.

Checks may be issued but not


recorded.

Independent bank
reconciliation is performed

Account may not be


Observe that person preparing
reconciled or discrepancy may bank reconciliation is

Observe procedure. Account


for sequence.

monthly.
D. Rights and obligations :
Checks signer who is
independent of voucher
preparation examines
supporting documentation
before signing checks.
E. Valuation /
F. Measurement:
Amounts and calculations on
vendors' invoices are
independently verified.
G. Presentation and
disclosure.
Chart of accounts adequately
describes accounts to be used,
and account coding is
assigned by one person and
checked by another.
V. Payroll Transactions
A. Existence /
B. Occurrence:
Personnel department officials
authorize additions of
employees to payroll and
approve changes in status and
changes in pay rates.
Payroll checks are signed and
distributed by a person not in
personnel, payroll accounting,
or supervision of operations
C. Completeness
Payroll checks are
prenumbered and accounted
for in the bank reconciliation
by a person independent of
the payroll function.

not be disclosed.

independent of cash handling.


Inspect reconciliation.

Unauthorized payments may


be made.

Observe procedure.

Improper amounts may be


paid because o math errors or
incorrect discounts.

Observe procedure. Examine


signature on invoice.

Payments may be credited to


wrong accounts.

Observe procedure. Examine


chart of accounts. Examine
signature of employee
performing check.

Payroll may include fictitious Examine approval signature


employees, former employees, on authorization for pay rate
or wrong rates.
change.

Payroll may include fictitious


or former employees.

Observe separation of duties.

Paychecks may be issued but


not recorded.

Observe procedures. Examine


bank reconciliation.

D. Rights and obligation


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Employees record their time


using a time clock but record
no other employee's time

Employees may be paid for


hours they did not work.

Observe procedure

Supervisors approve time


cards before submitting them
to payroll accounting.

Employees may be paid for


hours they did not work.

Examine signature on cards.

Multiple Choices
1. The following are possible misstatements in a Purchase Transaction except:
a. Documents may be reused and acquisitions may be recorded twice.
b. Purchases may be unrecorded.
c. Client could overpay for goods or services.
d. Employees may be paid for hours they did not work.
2. What management assertion deals with the use of correct account title to be used in
recording transaction?
a. Rights and obligation
b. Presentation and disclosure
c. Completeness
d. Valuation and measurement
3. The test of controls for this possible misstatement client could overpay goods or
services is :
a. Examine approval signature on authorization for pay rate change.
b. Observe procedure. Examine documents.
c. Examine voucher for signature indicating performance.
d. Observe separation of duties
4. Tests of controls are directed toward the controls:
a. efficiency.
b. effectiveness.
c. efficiency and effectiveness.
d. cost benefit ratio.
5. Which of the following is not appropriate for purposes of testing the effectiveness of controls?
a.

Make inquiries of client personnel.

b.

Evaluate prior experience with the client.

c.

Observe control-related activities.

d.

Reperform client procedures.

Reference:
Ma. Elenita Balatbat Cabrera, BBA, MBA, CPA, CMA, Public Accountancy Profession
2013-2014 EDITION