auditing expenditure cycle

7/28/2019 Auditing Expenditure Cycle

1/16


2/16

PURCHASES AND CASH DISBURSEMENT

PROCEDURES : BATCH PROCESSING TECHNOLOGY

Step 1: Data processing department Inventory control

Purchasing Department

Step 2: Data processing department

Purchase Order

Receiving Department

Step 3: Data processing department Batch update ofinventory

Accounts Payable

Step 4: Data processing department Validates vendors

Cash Disbursement


3/16

CASH DISBURSEMENT: BATCH

PROCESSING

Step 5: Data processing department scans for items due and prints checks foritems received

Step 6: Cash disbursements department reconciles checks, submits checks tomanagement for signature

Step 7: Accounts payable matchescopies of checks with open vouchers,closes them and files documents


4/16

CASH DISBURSEMENT:

REENGINEERED FULLY AUTOMATED

Goods arrive atreceiving department

Quantities received areentered on P.O per item

Receiving Department


5/16

SYSTEM

OVER MANUAL BATCH

-Improved inventorycontrol

-Better cashmanagement

-Less time lag

-Better purchasing timemanagement

-Reduction of paperdocuments


6/16

REENGINEERED SYSTEM- CONTROL

IMPLICATIONS

Segregation of

duties

Accounting

records andaccess controls


7/16

PAYROLL PROCEDURES

DRAWBACKS tousing regular A.P.

and cashdisbursements

systems to do payroll

General expenditureprocedures that apply to allvendors will not apply toemployees

Writing checks to employeesrequires special controls

General expenditureprocedures are designed toaccommodate relativelysmooth flow of transactions


8/16

REENGINEERED PAYROLL SYSTEM

-Often integrated within the Human

Resourc e Management System (HRM)

captures and processes a wide rangeof personnel-related data.

Human Resou rceManagement System (HRM)


9/16

REENGINEERED PAYROLL

SYSTEM

Operations departments transmit transactions toD.P. electronically

Direct access to files are used for data storage

Many processes are now performed in real time

-Differs from simple automate system in the

following ways:


10/16

REENGINEERED PAYROLL SYSTEM

Personnel

Cost accounting

Timekeeping

Data processing

- Key Operating Features:


11/16

Input Control

ProcessControl

OutputControl

EXPENDITURE CYCLE AUDITOBJECTIVES


12/16

EXPENDITURE CYCLE AUDIT


13/16

File update controls

Access controls

Risks specific to expenditure cycle:

Employees with access to A.P. subsidiary file

Employees with access to attendance records

Employees with access to both cash and A.P. records

Employees with access to both inventory and inventory records

Testing access controlsPhysical controls

Purchase system controls

Payroll system controls

Testing of physical controls


OBJECTIVES

Process contro ls



14/16

Accounts payable change report

Transaction logs

Transaction listing

Logs of automatic transactions

Unique transaction identifiers Error listing

Testing output controls


OBJECTIVES

Output contro ls


15/16

EXPENDITURE CYCLE

SUBSTANTIVE TESTS

Expenditure Cycle Risks and Audit Concerns

Potential for understatement of liabilities and related

expenses.Understanding Data

File structures:

Inventory file

Purchase order file Purchase order line item file

Receiving report file

Disbursement voucher file


16/16

Testing Accuracy and Completeness Assertions

Review Disbursement Vouchers for Unusual

Trends And Exceptions Accurate invoice prices

Testing Completeness, Existence, Rights and

Obligations Assertions Searching for unrecorded liabilities

Searching for unauthorized disbursement vouchers

Review of multiple checks to vendors

Auditing payroll and related records

EXPENDITURE CYCLE

SUBSTANTIVE TESTS

auditing expenditure cycle

Documents