Question 1, Part 4

Assume that your control tests conclude the control is ineffective and your analytical procedure indicates high risk that the occurrence assertion is violated. Provide one specific substantive test of details of maintenance purchase transactions to test the occurrence assertion.

Question

Question 1, Part 4

Assume that your control tests conclude the control is ineffective and your analytical procedure indicates high risk that the occurrence assertion is violated. Provide one specific substantive test of details of maintenance purchase transactions to test the occurrence assertion.

BlackTom AI · Accepted Answer

Question and option restatement:
- Question: Assume that your control tests conclude the control is ineffective and your analytical procedure indicates high risk that the occurrence assertion is violated. Provide one specific substantive test of details of maintenance purchase transactions to test the occurrence assertion.
- Provided option: Review recorded maintenance purchase transactions through inspection of supporting documents which include vendor invoices and work orders to confirm receipt of goods and services and validate expenditure validity. The invoice information must match receiving reports and payment evidence to confirm that the transactions took place.

Analysis of the option:
- Why this test addresses the occurrence assertion: The occurrence assertion is concerned with whether recorded transactions actually took place. By inspecting supporting documentation such as vendor invoices, work orders, receiving reports, and payment evidence, you trace a transaction from authorization through recording to real goods/services received. This alignment provides evidence that the recorded maintenance purchases did occur and were not fictitious.
- How the test supports substantive testing: This approach uses substantive test of details by directly verifying the existence of a transaction with external or source documents. Matching invoice data to receiving reports and payment records helps establish that a real procurement event occurred and that the recorded amount is appropriate for the goods or services received.
- Considerations for effectiveness: Ensure the documents are originals or properly authorized copies, verify dates to assess proper period inclusion, and confirm that the scope covers samples across vendors, times, and materiality thresholds. If the maintenance work involves long-term contracts or recurring services, you might also corroborate with maintenance work orders and approval codes to strengthen evidence of occurrence.
- Potential limitations or additional considerations (why more isn't strictly necessary here, but helpful): While this test strongly supports occurrence, you should remain mindful of potential collusion or falsified documents. Cross-checking with receiving reports and payment confirmations mitigates this risk. If the organization uses centralized invoicing or multiple approving levels, consider sampling across departments and vendors to ensure a representative test is performed.
- Why this is preferable for occurrence testing in this scenario: Given the high risk of occurrence violation, a detailed, document-based trace from vendor invoice and work order to receiving report and payment provides concrete evidence that each maintenance purchase transaction actually happened, rather than relying solely on analytical evidence or internal records.
- Summary takeaway: The proposed substantive test of details directly targets existence by verifying external evidence against internal records, which is the core method to substantiate the occurrence of maintenance purchase transactions and to validate that recorded expenditures correspond to real goods or services received.

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