Student Forums CIA Part 2: Practice of Internal Auditing Section III: Performing the Engagement Question ID: CIA 596 2.14 & Question ID: CIA 598 2.38

Question ID: CIA 596 2.14 & Question ID: CIA 598 2.38

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  • #225913

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    This forum is restricted to members of the associated course(s).

    Mitalee Chowdhury
    Participant

    Which of the following documents would provide the best evidence that a purchase transaction has actually occurred?

    • A. Cancelled check issued in payment of the procured goods.
    • B. Ordering department’s original requisition for the goods.
    • C. Receiving memorandum documenting the receipt of the goods.
    • D. Supplier’s invoice for the procured goods.

    I understand why option C is the right answer. But A. option’s Explanation says “The canceled check indicates that the goods have been paid for, not received.”

    My point is good is paid for means a purchase has happened! Receiving report also means purchase has happened but cancelled check is better evidence (externally generated) than receiving report (internally generated). Now wait here lets look at another question..

     2nd question (Question ID: CIA 598 2.38)

    Which of the following represents the most competent evidence that trade receivables actually exist?

    • A. Positive confirmations. correct
    • B. Receiving reports.
    • C. Bills of lading. wrong
    • D. Sales invoices.

    Option C says that bill of lading is not as reliable as a confirmation and it does not confirm the continued existence of the receivable.

    Then how does Receiving report (1st question) verify the continued purchase. At any time the purchase can be returned also. Ans receiving report does not mean payment is done. It goes through to AP team afterwards etc etc.

    So basically my question is on the first question (CIA 596 2.14)  where i believe Cancelled checks is the best evidence. I am quoting the 2nd questions just for logic sake. Please guide.

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    Brian Hock
    HOCK international

    Hello, Mitalee,

    The key thing between these two questions is that they are trying to prove different things. In the first question, just because a payment has been made does not mean that the purchase actually took place. For example, every week, I get multiple emails from companies saying that I owe them money and asking me to pay. So, if I were to actually send a check to them, that does not mean that I actually purchased something. Or, in the case of fraud, just because I send a check to another company does not mean that the check actually represents payments for goods. It may have been a bribe, or kickback. But, if we have a document that shows that the goods were actually received by the shipping department, that would indicate that we have received goods, which most likely indicates a purchase of the goods. This question is also asking us to confirm that the purchase transaction has taken place. This does not mean that payment needs to have taken place, just that we have purchased something. So, even if it was returned, the original purchase transaction did take place.

    In the second question we are trying to prove that a customer actually owes us money. A positive confirmation is a statement from the customer that they agree that they owe us money. So, that is the best proof. A bill of lading indicates that we shipped the goods, which proves that there was a sale. But, if the customer already paid for the goods, even though there was purchase there is no receivable.

    Do these explanations help? I understand that the difference between them is small, but it is a critical difference as these two questions are looking for confirmation of different parts of the transaction and from the different parties in the transaction.

    Brian

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