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The report to management issued after the prior year audit highlighted significant deficiencies relating to the purchases cycle
For this audit risk, the following explanation is given
cost of sales, expenses and trade payables may not be complete or accurate
how would cost of sales and expenses be affected and why would they be incomplete or inaccurate
Also is it correct that purchases may not be complete or accurate
Also why is it written that cost of sales expenses and trade payables may not be complete “or” accurate instead of cost of sales expenses and trade payables may not be complete “and” accurate. Are both correct
1. See at the top of page 74 of the notes for definition of “signficant deficiencies” and what they mean/why they are relevant.
2. See page 75 for a depicition of a purchases system (“cycle”).
Combining these – if there are signficiant deficiencies in purchases – where would misstatements in the financial statements most likely arise? (Answer – cost of sales/expenses/trade payables).
Not complete and not accurate are both examples of misstatement.
Semantics “and”/”or” are not important in passing the exam.
Both may or may not be correct – e.g. purchases could be completely recorded, but not necessarily accurately. If purchases are not completely recorded they are clearly not accurate either.
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