ACC – Card Shop Inc. (CSI) Problem



Card Shop Inc. (CSI) is a small owner-managed greeting card specialty store. Due to the small size of the store, the bookkeeper has established a very simplistic accounting system. Inventory items are ordered by either the owner or the store manager using pre-numbered purchase orders. When items are received, they are recorded on pre-numbered receiving documents. When the vendor invoice is received from the supplier, the bookkeeper matches it to the purchase order and receiving documents. The bookkeeper records the purchase of the inventory or any items at the time the cheque is generated. The bookkeeper provides the owner with the unsigned cheques and the related supporting documentation. The owner reviews the documents and signs and mails all cheques.

At the end of each quarter, the bookkeeper prepares financial statements for internal use. In order to record the payables, the bookkeeper prepares an excel spreadsheet listing all outstanding invoices. Included in the listing is the vendor name, invoice number, amount owed, and a receiving document reference. A separate file is maintained with hard copies of all outstanding invoices included in the spreadsheet. The bookkeeper then prepares an adjusting entry to record the accounts payable at the balance sheet date. The entry is then reversed at the beginning of the next period.


Explain how the lack of an ongoing accounts payable system will affect the auditor tests for the purchases and payables cycle. Your answer should also identify assertions and account balances affected.

When testing accounts payable, explain why an auditor would choose to select suppliers with nil balances in the accounts payable sub-ledger. Explain why it is unlikely that an auditor would do the same for accounts receivable.

List four audit procedures, other than confirmations, that the auditor could perform to audit the completeness assertion for accounts payable.


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