Question

You are the auditor of a client where you believe there is significant risk that the purchases account at year-end contains items that should have been debited to other expense accounts. Clearly answer each of the following: A.) In order to detect this type of error in the purchases account, which audit procedure would be most appropriate, vouching or tracing? B.) Which management assertion for the purchases account is questionable, occurrence or completeness? Explain your answers and be specific.

Answer 1

A.) Tracing purchase documents to purchases account provides evidence that how much the entity actually purchased goods and only that should be included in purchase account. It also provides the auditor evidence of the cost of the purchases, which can be used in cost or market evaluations. In order to detect this type of error in the purchases account, tracing would be most appropriate.

B.) Most relevant assertion for expense transaction is Completeness. Completeness assertion ensures all purchase transactions and events that should have been recorded have been recorded. Completeness assertion also ensures all accrued expenses have been recorded. Hence, completeness assertion for the purchases account is questionable.