Case 6 - Exercise 2Lakeside Company

Inventory Purchases and Cash Disbursements TransactionsDecember 31, 2012

Audit document No.Prepared by: Audit Team 6

Reviewed by:Reviewed by:

Date Vendor

Purchase Requisition Number

Receiving Report Number

Invoice Number

Check Numb

er

Check Amount

AuditProcedures

8/20/06

Cypress Products 6702 3918 711 3091 $2,413.95

8/21/06

Cypress Products 6703 3919 802 3121 $523.80 F

8/24/06

Cypress Products 6705 3920 991 3164 $1,810.28 F

8/27/06

Cypress Products 6704 3921 1261 3203 $2,860.03 E H

8/28/06

Cypress Products 6706 3922 1313 3251 $6,030.04 D

9/2/06 Cypress Products 6707 3923 1406 3310 $2,577.10 G 9/3/06 Cypress Products 6708 3924 1510 3345 $3,745.60 I9/7/06 Cypress Products 6710 3925 1616 3397 $354.05 F

B Cypress Products 6709 3926 1691 3425 $1,507.77 B 9/14/0

6Cypress Products 6711 3927 1812 3451 $11,698.8

8 C C

9/16/06

Cypress Products 6712 3928 2072 3471 $2,941.36 F J

9/16/06

Cypress Products 6713 3929 2149 3510 $14,867.97

E

Audit Objectives:

To verify that all merchandise that was received was properly ordered and recorded.To verify that assets and expenses are valued and classified correctly and accurately.To verify that merchandise orders are handled by procedure and cash disbursements occur accurately.

Scope:a) Population- All received merchandise.b) Sample- Judgmental. Selected 12 receipts of merchandise from Inventory Department’s receiving report file.

Audit Procedures: Reviewed receiving reports for completeness and authorization. Refer to comments A and B. Verified that each item listed was recorded properly in the inventory purchases journal. Traced to vendor invoice and purchase requisition in Treasurer’s Office. Purchase requisition examined for agreement

with receiving report. All agreed except C and D. Examined purchase requisition for evidence that the proper company official approved items and quantities. Thomas’

and Rogers’ signatures or initials were present in all cases except E. Examined vendor invoice for agreement with receiving report and purchase requisition concerning the quantity and

description of goods received. C was an exception here. Examined vendor invoice for evidence that company employees verify prices, extensions, and footings. Markings or

initials were present in all cases except for case F. Compared invoice prices with Master Price list. Exceptions were as follows: H, I, and J. Traced invoice to canceled check and matched dollar amounts, any applicable discount was recalculated. J and K were

exceptions.

Comments: A. The Receiving reports do not have a place for the Vendor name. Even though must product is received from cypress,

there should be a location to list alternative vendor names.B. Receiving report #3926 is not on file. The Purchase Requisition and Vendor Invoice were used to verify quantity and

descriptions of items. Copies of Receiving Report were pulled from the Treasury Department and the Controller’s Office. The copies of Receiving Report agreed with other documents.

C. Receiving Report #3927 did not match Purchase Requisition #6711. Inventory and accounts payable are overstated by $160.68. There was no sign of a note made on Purchase Requisition upon the client’s comparison of the two.

D. The part number of Televisions listed on the Vendor Invoice does not match up with the Purchase Requisition and Receiving Report. It is off by a single letter. Thomas verfied that this is a typo on the Vendor’s part.

E. Speak with Thomas regarding procedures when merchandise is back-ordered so that same merchandise is not re-ordered upon notice that it is low. An additional copy of the Purchase Requisition is made at time of comparison with

Receiving Report, the line with item and note about backordered items are highlighted. This is documented with other open Purchase Requisitions in Treasurer’s Department. Change system flowchart.

F. Some of the Purchase Requisitions were completed by Thomas’ assistant Wisdon and some were approved by Rogers’ assistant Miller. Thomas and Rogers both verified that these signatures are authorized. Change system flowchart.

G. Vendor invoice #1406 was not priced, footed, and extended. Client paid invoice with check without any evidence that this step had been completed.

H. The price of part KJ32-K on Vendor Invoice does not match Master Price list. Thomas needs to update Master Price list.I. Price of part BV24-R on Vendor Invoice does not match Master Price list. Thomas needs to update Master Price list.J. The price of part PO88-Q on Vendor Invoice does not match Master Price list. Thomas needs to update Master Price list.K. Vendor Invoices are not being paid within 20 days, but 3/20 terms discounts are shown are used. L. Check #3203 is not the correct amount. Accounts payable is understated by $31.74

Audit Conclusion:Further testing is recommended in order to obtain evidence that Inventory receipts are recorded accurately and Purchases and cash disbursements are fairly stated, in all material respects.