You are conducting an external audit of the company’s financial statements and are working at the client’s office two weeks after the year end.

a. Design a test with two audit procedures, in addition to sample selection, using the unmatched supplier invoice file to test at least one control objectives. Specify which objective(s) you are testing, which documents and any other financial records you are using besides the unmatched supplier invoice file, and how your test would verify the objective(s). Do not use any analytical procedures.

b. Design a test with two audit procedures, in addition to sample selection, using the unmatched receiving report file to test one internal control objective. Specify which objective(s) you are testing, which documents and any other financial records you are using besides the unmatched receiving report file, and how your test would verify the objective(s). Do not use any analytical procedures.

(Extract from AU1 CGA - Canada Examinations developed by the Certified General Accountants Association of Canada © 2010 CGA-Canada. Reproduced with permission. All rights reserved.)

The following procedures are used by EGO Company:

• EGO’s purchasing manager approves all purchase above $250. The administrative staff use the petty cash system to purchase minor items that are needed for the office and the manufacturing plant.

• When a supplier invoice is received, the accounting department matches it to the corresponding purchase order and assigns the supplier invoice with purchasing order a sequential number (called a voucher number).

• Unmatched receiving reports are scanned and matched to the voucher. Once the receiving report is found that matches the purchase order and supplier invoice, the voucher (now comprising a supplier invoice, matching purchase order, and matching receiving report) is given to the accountant for entry into the acquisition journal.

• If there is no receiving report on file, the voucher with supplier invoice and attached purchase order remains in the unmatched supplier invoice file.

• The purchase order contains a description of the goods, the vendor name, the date of the purchase approval, whether the goods were purchased FOB destination or FOB origin, and the purchasing manager’s initials showing her authorization for the purchase.

• When the company receives goods, the receiver prepares a receiving report and forwards it to the accounting department. The accounting department checks their unmatched supplier invoice file, and if there is no corresponding supplier invoice on hand, the receiving report is placed in an unmatched receiving reports file.

• The company’s accounting system retains transaction files, an acquisition journal and supplier master file accounts for all authorized suppliers.