$18-21($Objective $18-3)$ Questions $1$ through $8$ are typically found in questionnaires

used by auditors to obtain an understanding of internal control in the acquisition and

payment cycle. In using the questionnaire for a client, a $$yes$$ response to a question

indicates a possible internal control, whereas a $$no$$ indicates a potential deficiency.

$1.$ Is the purchasing function performed by personnel who are independent of the

receiving and shipping functions and the payables and disbursing functions?

$2.$ Are all receiving reports prenumbered and the numerical sequence checked by a

person independent of check preparation?

$3.$ Are all vendors$$ invoices routed directly to accounting from the mailroom?

$4.$ Does a responsible employee review and approve the invoice account distribution

before the transaction is entered in the computer?

$5.$ Are all extensions, footings, discounts, and freight terms on vendors$$ invoices checked

for accuracy?

$6.$ Are checks automatically posted in the cash disbursements journal as they are

prepared?

$7.$ Are all supporting documents properly cancelled at the time the checks are signed?

$8.$ Is the custody of checks after signature and before mailing handled by an employee

independent of all payable, disbursing, cash, and general ledger functions?

Required:

a $.$ For each of the preceding questions, state the transaction$-$related audit objective$($s$)$

being fulfilled if the control is in effect.

b $.$ For each internal control, list a test of control to test its effectiveness.

c $.$ For each of the preceding questions, identify the nature of the potential financial misstatement$($

s$)$ if the control is not in effect.

d $.$ For each of the potential misstatements in part c$.,$ list a substantive audit procedure

that can be used to determine whether a material misstatement exists.