Assignment 4: Inherent Risk, Tests of Controls, and Substantive Procedures In this assignment, you will prepare a two to three (2-3) page professional document that addresses the requirements specifie

Cloud 9

Josh and Suzie are pleased with the results of tests of controls related to the purchasing process. They found strong controls over the master vendor file, and vouchers are prepared based only on original invoices. Cloud 9 is very careful about entering the right invoice number, including any leading zeros, so an invoice is not paid twice. Further, individuals who are responsible for following up on exceptions understood the types of exceptions they were following up on, and exceptions tended to be rare. Finally, under David Collier's direction, Cloud 9 developed clear procedures for accruing payables for goods received in the warehouse for which vendor invoices had not yet arrived.

As Josh and Suzie finalize their plans for substantive tests in the purchasing process, they recognize that a significant number of tests of transactions were accomplished with dual-purpose tests for testing controls. With cutoff controls being performed monthly, they decided to test cutoff at interim with a dual-purpose test, plus retesting Cloud 9's internal control and simultaneously performing substantive cutoff procedures at year-end. Josh did not feel that confirmations of payables was an effective procedure. Josh felt the audit team could perform a search for unrecorded liabilities at year-end, rather than performing the procedure at an interim date and performing roll forward tests. Josh felt that performing the search for unrecorded liabilities at year-end would not be overly time-consuming, and it would be good to have evidence as of the balance sheet date.