Question

A client's materials purchasing cycle begins with requisitions from user departments and ends with the receipt of materials and the recognition of a liability. An auditor's primary objective in reviewing this cycle is to:

Answer 1

An auditor's primary objective in reviewing a client's materials purchasing cycle is to verify authorization, completeness, accuracy, and proper recording of transactions from requisition to liability recognition.

Step-by-step explanation:

The auditor's primary objective in reviewing a client's materials purchasing cycle is to ensure that the transactions for purchases are authorized, complete, accurate, and properly recorded. This involves verifying that proper controls are in place from the initial requisition to the final recognition of a liability when materials are received. Every step must be documented and subjected to internal controls to prevent errors or fraud.

An auditor examines the documentation surrounding requisition orders, purchase orders, receiving reports, and vendor invoices to confirm that the materials received are the same as those requested and invoiced. The auditor also assesses if the liability recorded corresponds accurately to the goods received, at the correct prices. Finally, the auditor evaluates whether the materials and the associated liabilities are recorded in the proper accounting period to ensure accurate financial reporting.

The audit process aims to give assurance to stakeholders that the company's financial statements are free of material misstatement and that the company's purchasing activities are conducted in a manner that appropriately conserves the company's assets.