Question

An entity's procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the following best describes the auditor's primary concern with respect to liabilities resulting from the procurement system?

1) Accounts payable are not materially understated.
2) Authority to incur liabilities is restricted to one designated person.
3) Acquisition of materials is not made from one vendor or one group of vendors.
4) Commitments for all purchases are made only after established competitive bidding procedures are followed.

Answer 1

1) Accounts payable are not materially understated. The auditor's primary concern is that accounts payable are not materially understated. Other concerns may include authority restrictions and diversification of vendors.

Step-by-step explanation:

The auditor's primary concern with respect to liabilities resulting from the procurement system is that accounts payable are not materially understated. This means that the liabilities recorded in the entity's financial statements should reflect the true amount owed by the entity. The auditor needs to ensure that all of the entity's obligations are properly recognized and disclosed.

In addition to ensuring accounts payable are accurately stated, the auditor may also be concerned with other aspects of the procurement system. For example, it is important that the authority to incur liabilities is restricted to one designated person. This helps prevent unauthorized or fraudulent transactions.

The acquisition of materials is not made from one vendor or one group of vendors is also important. Diversifying the sources of materials reduces the risk of overreliance on a single vendor, which could lead to supply chain disruptions or increased prices.