14-34 (Objectives 14-3, 14-5) In Part III of this case study, you obtained an understanding of internal control and made an initial assessment of control risk for each transaction-related audit objective for acquisition and cash disbursement transactions. The purpose of Part V is to continue the assessment of control risk by determining the appropriate tests of controls and substantive tests of transactions. In order to do this, you must complete the steps needed to prepare a high-quality performance format audit program for tests of controls and substantive tests of transactions for acquisitions and cash disbursements.

Assume in Part III that you identified the following as the key controls you want to rely on (even though your answers were likely different from these):

• 1. Segregation of the purchasing, receiving, and cash disbursements functions
• 2. Use of prenumbered voucher packages, properly accounted for
• 3. Use of prenumbered checks, properly accounted for
• 4. Use of prenumbered receiving reports, properly accounted for
• 5. Internal verification of document package before check preparation
• 6. Review of supporting documents and signing of checks by an independent, authorized person
• 7. Cancellation of documents prior to signing of the check
• 8. Monthly reconciliation of the accounts payable master file with the general ledger
• 9. Independent reconciliation of the monthly bank statements

• Required

  • a. Prepare an audit file listing the nine controls or download them from the textbook Web site.
  • b. After each control, identify the transaction-related audit objective(s) that it partially or fully satisfies.
  • c. Immediately below the control, list one audit procedure to test the control. Use the most reliable test of control evidence that you can think of. Write the audit procedure in good form.
  • d. Immediately below the test of control, list one substantive test of transactions audit procedure to test whether the control failed to be effective. Use the most reliable substantive tests of transactions evidence that you can think of.
  • e. Create a separate audit schedule labeled