auditing chapter 12 purchases & cash disbursements transactions by david n. ricchiute
TRANSCRIPT
GBW 8th ed., Ch. 122
TOPICSNature of expenditure/disbursement cycle Flow of information
Auditor’s assessment of control risk Audit of internal control for purchases,
cash disbursements
Computer auditing, sampling, tests of controlsAssurance, consulting services
GBW 8th ed., Ch. 123
NATURE EXPENDITURE/DISBURSEMENT CYCLE
Goods, services acquired from vendors, employees in exchange for obligations to payObligations to vendors, employees are paid
GBW 8th ed., Ch. 124
EXPENDITURE, DISBURSEMENT CYCLEFlow of information Purchase requisition received to purchase
goods Purchasing department issues purchase order
to vendor for purchase of goods Receiving department creates report that
identifies information about goods received Accounts payable receives vendor’s invoice Accounts payable creates voucher to authorize
payment
GBW 8th ed., Ch. 125
DOCUMENTS
Purchase requisition Request to purchase goods
Purchase order Request issued by Purchasing dept. to
vendor
Receiving report Identifies information about goods received
Vendor’s invoice Formal notice amount, terms of payment
Voucher package Voucher & supporting documents
GBW 8th ed., Ch. 126
CONTROLS OVER PURCHASING
Purchase requisition must be approvedPrenumbered purchase order describes price, quantity, terms of goods orderedGoods received compared to purchase order in receiving departmentAccounts payable matches purchase order, receiving report, invoice before authorizing paymentAccounts payable prepares voucher for recording by General Accounting
GBW 8th ed., Ch. 127
CASH DISBURSEMENTS
Process Voucher package sent to Treasury
department (separate from accounts payable)
Treasury department reviews, reconciles, authorizes payment
Checks drawn for payment May require 2 signatures over a limit
GBW 8th ed., Ch. 128
INTERNAL CONTROL & RISK
Controls RisksAuthorization
Prenumbered receiving reportsRecording controlsRestricted access
Unauthorized purchases, vendorsGoods received not ordered, damagedReceived not recorded, used
Goods, records, forms misused
GBW 8th ed., Ch. 129
ASSESSING CONTROL RISKObtain Understanding
Review Sarbanes-Oxley Section 404 documentation for sales processDocument the client’s system Flowchart, questionnaire, narrative
Perform transaction walk-throughIdentify control activitiesTest controls to reduce control risk below maximumAssess control risk
GBW 8th ed., Ch. 1210
TEST OF CONTROLSPurchasing, Disbursements
Provide a reasonable degree assurance that employees comply with management’s proceduresPurchasing Properly authorized, executed,
recorded
Disbursements Payments remitted, recorded
promptly
GBW 8th ed., Ch. 1211
CONTROL RISKPurchasing
Major risks Unauthorized purchases Non-competitive prices
GBW 8th ed., Ch. 1212
TESTING CONTROLSPurchasing
Select random sample paid voucher packages Examine for cancellation,
authorization, details
Obtain Purchasing Department’s copy of requisition, purchase order Compare to voucher package Trace to competitive bids
GBW 8th ed., Ch. 1213
CONTROL RISKReceiving
Major risks Goods received not counted,
inspected Goods received not compared to
purchase orders
GBW 8th ed., Ch. 1214
TESTING CONTROLSReceiving
Obtain Receiving Department copy of receiving report for voucher sample Compare receiving reports Review receiving reports for evidence
of count, inspection Trace receiving reports to receiving
log
GBW 8th ed., Ch. 1215
CONTROL RISKCash Disbursements, Recording
Major risks Cash payments made to unauthorized
payee Details recorded in voucher register
are recorded for proper vendor Totals agree to general ledger
GBW 8th ed., Ch. 1216
TESTING CONTROLSCash Disbursements, Recording
Obtain canceled checks for voucher package Examine for signatures, endorsements Compare detailed information about
check from voucher package to canceled check
Trace voucher packages, canceled checks to postings Review for classification, accuracy Scan voucher register for unusual items
GBW 8th ed., Ch. 1217
ASSESSING CONTROL RISK
2 Questions Are controls effective? Can controls be relied upon?
If answer is yes to both Assess control risk below maximum Assess detection risk above minimum Restrict substantive tests of sales,
receivables, cash
GBW 8th ed., Ch. 1218
PRELIMINARY OPINION ON INTERNAL CONTROL
Required by Sarbanes-Oxley Auditor must form opinion on
management’s assessment of internal control over financial reporting based on Reports of internal auditors Auditor’s tests of controls Substantive audit tests
GBW 8th ed., Ch. 1219
TESTS OF CONTROLSPromotion Accrual
Review reconciliation promotion payments Test calculation
Review accrualSearch for post period-end payments for evidence of unrecorded promotions
GBW 8th ed., Ch. 1220
COMPUTER AUDITING & SAMPLING
Understand the systemTests of controls Input controls
Code verification Data entry controls
Processing controls Control totals Limit tests
Assess control risk
GBW 8th ed., Ch. 1221
POTENTIAL ERRORS, FRAUDS
Cash disbursed to unauthorized partiesDuplicate payments madeAccount balances inaccurate