Question

As part of his controls testing over DULL's purchasing process, Shawn Hiwa noted that supporting documentation for cash disbursements to vendors was frequently delayed in delivery to accounts payable; and, in some cases, never arrived at all. As a result, some payments made to vendors are not recorded in the accounts payable sub ledger.

In the above example, which managerial assertion is being violated?

a. authorization
b. completeness
c. existence/occurance
d. valuation, allocation, and accurancy

Answer 1

The managerial assertion being violated in Shawn Hiwa's controls testing is the completeness assertion because some of the payments made are not recorded in the accounts payable sub ledger, leading to potential understatements in the financial records.

Step-by-step explanation:

In the scenario described, Shawn Hiwa's controls testing is pointing to a violation of the completeness assertion in DULL's purchasing process. The completeness assertion relates to the inclusion of all relevant transactions in the financial records. Due to supporting documentation for cash disbursements not reaching accounts payable — and in some cases never arriving — payments made to vendors are not recorded in the accounts payable sub ledger. This means that the financial statements could potentially understate liabilities or expenses, as not all transactions are being captured, leading to inaccuracies in the reported financial position of the company.

By comparison, an overpayment identified by Noel in the referenced anecdotal information also touches upon issues of valuation, allocation, and accuracy, since it involves an incorrect amount being processed for payment. However, the core issue in Shawn's observation is not the accuracy of individual transactions, but rather the systemic issue of missing documentation and the failure to record all transactions.