Rose Marie N.

Hermosa BSA 3 – Block 4

Marianette Marimon, CPA, MMA 3096 – MWF

SUBSTANTIVE TESTS: Exercise 5.3 – 5.4

Exercise 5. 3
Review of Liabilities Unusual Trends and Exceptions

1. Generate query for A/P Invoice with the following data:

Table Field: OPCH

Select: DocNum, DocDate, CardCode, CardName, DocTotal
Sort by: DocTotal
2. Did you encounter any irregularities on the Report? Explain Briefly
Yes, the document number 26 with the vendor’s name of PC Gilmore. It caught
my attention the large amount of 1,120,000.00 which was executed at 12.31.13.
The said amount is somehow way too large compare to other usual amounts of
A/P Invoice where the posting date adds up to the doubt as to why it was posted
on that date where it is supposed to be that specific date is a holiday, no or less
transactions are expected.

3. What actions will you take?

The said irregularity leads to the skeptical question, “is this amount valid and in
existence? because it could be that they just made this up as a way to understate
their liabilities and related expenses. Hence, appropriate audit procedure
regarding this irregularity should be conducted by inquiring to the management of
the company as to why the posting date is recorded in the last day of the year as
well as seeking additional information that may possibly corroborate or refute this
amount of A/P invoice. This can be done by sending a confirmation letter to the
vendor in order to directly determine the validity of the said amount.
Essentially, one practical audit procedure can be done to test the existence of the
account’s amount is by examining the subsequent payments to suppliers. This
test involves scanning the payments made in the subsequent period and check if
the payables recorded in the last period were paid.

4. Is there a need for us to propose Adjusting Entries?

No, the irregularity relates only to the suspected amount and its posting date
which are yet to be inquired and verified.

5. If Yes, what would be the entry?

None
Exercise 5. 4
Testing Completeness Assertions

1. Match all GRPO documents with the A/P Invoices Processed. Are there
any irregularities?

2. Did you encounter any irregularities on the Report? Explain Briefly

Yes, the Good Receipts PO numbers 26 and 27 have no matching A/P
invoice with the respective net input vat amounts of 280,000.00 and
224,000.00 according to the comparison on the list of Goods Receipt PO and
list of A/P invoices. Also, in the list of A/P Invoices, there was one document
number which is 26 that has no matching Goods Receipt P/O. Hence, these
are some of the red flags in testing the completeness assertion. Because
completeness suggests that all transactions that should have been recorded
have been recorded.
3. What actions will you take?

The very concern of testing completeness assertion is the understatement

of accounts. Since this is a test of completeness, the auditor shall trace all
the transactions from source documents to the records. In this case, if
there were no matching A/P invoice for a particular receiving report, it
might indicate that a liability was not recorded. And since there were
already transfer of ownership on the goods as of the end of the period as
evident in the receiving report, it is appropriate to record a liability account
for it to be reflected in the annual financial report. Hence, appropriate
adjusting entries shall be recorded relating to the last two Goods Receipt
PO that have no matching A/P Invoice in order to reflect the correct
balance of liability as of the end of the period.

Moreover, for the AP Invoice with a document number 26 amounted to

1,120,000.00 that has no matching Goods Receipt PO has need to be
inquired to the management because based on the examination, it was
found out through the relationship map that there were no recorded
documents of Purchase Order and Goods Receipt PO on the said
transaction. It was just directly recorded as A/P invoice in which the latter
is yet to be confirmed to the vendor through confirmation letter.

4. Is there a need for us to propose Adjusting Entries?

Yes, adjusting entries relating to the last two Goods Receipt PO that have
no matching A/P Invoice in order to reflect the correct balance of liability
as of the end of the period. On the other hand, there is no need to propose
adjusting entry for the AP Invoice with a document number 26 amounted
to 1,120,000.00 which has no matching Goods Receipt PO because this is
merely a suspected transaction which is yet to be inquired to the
management and confirmed to the vendor.

5. If Yes, what would be the entry?