8.41 Payable ICQ Items: Assertions, Tests of Controls, and Possible Errors or Frauds.

Following is a selection of items from internal control questionnaires.

1. Are purchase orders above a certain level approved by an officer?

2. Are the quantity and quality of goods received determined at the time of receipt by receiving personnel independent of the purchasing department?

3. Are vendors' invoices matched against purchase orders and receiving reports before a liability is recorded?

4. Are journal entries authorized at appropriate levels?

Required:

For each preceding item:

a. Identify the management assertion to which it applies.

b. Specify one test of controls auditors could use to determine whether the control was operating effectively.

c. Give an example of an error or fraud that could occur if the control were absent or ineffective.

d. Write a substantive procedure that could find errors or frauds that could result from the absence or ineffectiveness of the control items.