Student
Chapter 8
Page 320
8.1
The short-term effect on the financial statements for improperly capitalizing expenditures is to increase net income since expensed items are included just like assets while the long-term effect is pretty much similar to short-term effect because the assets are charged to expense as depreciation.
Page 324
8.3
A purchasing manager can direct purchases toward vendors who provide the manager kick-backs. This can be prevented by notifying suppliers that the company will not permit payment of kick-backs to its employees. The company can also rotate purchasing managers to different vendors. Significant purchases should be reviewed and approved by a higher level manager.
8.5
An auditor can find evidence about losses on purchase commitments in the open purchase order file. Evidence about unrecorded liabilities to vendors is found in the unmatched invoice file and unmatched receiving report file.
Page 328
8.7
The following are functions that should be separated to maintain internal control in a purchasing system: custody of goods, authority to initiate a transaction, bookkeeping, and periodic physical counts of inventory and fixed assets.
8.9
Substantive procedures of a low risk of material misstatement would normally result in strategy where the auditor relies on controls and reduces substantive test. The auditor would confirm the low control risk evaluation by testing controls for effectiveness. High risk material misstatement would result in a more substantive approach with little control testing.
Page 334
8.13
The assertions that are of interest to an auditor during the examination of expenditure and acquisition cycle are: property, plant and equipment and intangibles - which are the management assertions. So, these management assertions that related to it are existence, completeness, rights and obligations, and valuation and allocation.
8.15
The four methods that are used to audit other expense accounts are: 1.
Page 320
8.1
The short-term effect on the financial statements for improperly capitalizing expenditures is to increase net income since expensed items are included just like assets while the long-term effect is pretty much similar to short-term effect because the assets are charged to expense as depreciation.
Page 324
8.3
A purchasing manager can direct purchases toward vendors who provide the manager kick-backs. This can be prevented by notifying suppliers that the company will not permit payment of kick-backs to its employees. The company can also rotate purchasing managers to different vendors. Significant purchases should be reviewed and approved by a higher level manager.
8.5
An auditor can find evidence about losses on purchase commitments in the open purchase order file. Evidence about unrecorded liabilities to vendors is found in the unmatched invoice file and unmatched receiving report file.
Page 328
8.7
The following are functions that should be separated to maintain internal control in a purchasing system: custody of goods, authority to initiate a transaction, bookkeeping, and periodic physical counts of inventory and fixed assets.
8.9
Substantive procedures of a low risk of material misstatement would normally result in strategy where the auditor relies on controls and reduces substantive test. The auditor would confirm the low control risk evaluation by testing controls for effectiveness. High risk material misstatement would result in a more substantive approach with little control testing.
Page 334
8.13
The assertions that are of interest to an auditor during the examination of expenditure and acquisition cycle are: property, plant and equipment and intangibles - which are the management assertions. So, these management assertions that related to it are existence, completeness, rights and obligations, and valuation and allocation.
8.15
The four methods that are used to audit other expense accounts are: 1.