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CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements

While auditing purchases of Sundaram Traders Ltd., the auditor wants to confirm that goods purchased during the year were actually received and belong to the company. Which procedure gives the most direct evidence on this assertion?

Matching purchase invoices with goods received notes and purchase orders is the most direct evidence, because it shows the goods were authorised, delivered and actually received by the company. The other procedures test arithmetic, ledger posting or trends, not whether purchases really occurred.

  1. AComparing purchase invoices with goods received notes and the purchase orderCorrect
  2. BRe-adding the purchase day book
  3. CChecking that purchase ledger balances agree with the control account
  4. DComparing purchases with the previous year's total

Explanation

Matching supplier invoices with goods received notes and purchase orders shows that goods were ordered, received and authorised, which supports occurrence of purchases. Re-adding the day book tests only arithmetic accuracy. Control account agreement tests posting, not receipt of goods.

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