Post on 04-Jan-2016
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TOPICS Nature 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 controls
Assurance, consulting services
GBW 8th ed., Ch. 12 2
NATURE EXPENDITURE/DISBURSEMENT CYCLE
Goods, services acquired from vendors, employees in exchange for obligations to pay
Obligations to vendors, employees are paid
GBW 8th ed., Ch. 12 3
P R O C U R E M E N T C Y C L E(S U B S Y S T E M )
P u rch as in g
A cco u n ts P ayab le
R ece iv in g /In sp ec tio nC ash D isb u rsem en ts
P u rch ase R eq u is itio n
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EXPENDITURE, DISBURSEMENT CYCLE
Flow of informationPurchase requisition received to purchase goodsPurchasing department issues purchase order to
vendor for purchase of goodsReceiving department creates report that identifies
information about goods receivedAccounts payable receives vendor’s invoiceAccounts payable creates voucher to authorize
payment
GBW 8th ed., Ch. 12 6
DOCUMENTS
Purchase requisitionRequest to purchase goods
Purchase orderRequest issued by Purchasing dept. to vendor
Receiving reportIdentifies information about goods received
Vendor’s invoiceFormal notice amount, terms of payment
Voucher packageVoucher & supporting documents
GBW 8th ed., Ch. 12 7
CONTROLS OVER PURCHASING
Purchase requisition must be approved Prenumbered purchase order describes
price, quantity, terms of goods ordered Goods received compared to purchase order
in receiving department Accounts payable matches purchase order,
receiving report, invoice before authorizing payment
Accounts payable prepares voucher for recording by General Accounting
GBW 8th ed., Ch. 12 8
CASH DISBURSEMENTS
ProcessVoucher 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. 12 9
INTERNAL CONTROL & RISK
Controls Risks
GBW 8th ed., Ch. 12 10
Authorization
Prenumbered receiving reportsRecording controlsRestricted access
Unauthorized purchases, vendorsGoods received not ordered, damagedReceived not recorded, used
Goods, records, forms misused
ASSESSING CONTROL RISKObtain Understanding
Document the client’s systemFlowchart, questionnaire, narrative
Perform transaction walk-through Identify control activities Test controls to reduce control risk below
maximum Assess control risk
GBW 8th ed., Ch. 12 11
TEST OF CONTROLSPurchasing, Disbursements
Provide a reasonable degree assurance that employees comply with management’s procedures
PurchasingProperly authorized, executed, recorded
DisbursementsPayments remitted, recorded promptly
GBW 8th ed., Ch. 12 12
CONTROL RISKPurchasing
Major risksUnauthorized purchasesNon-competitive prices
GBW 8th ed., Ch. 12 13
TESTING CONTROLSPurchasing
Select random sample paid voucher packagesExamine for cancellation, authorization,
details
Obtain Purchasing Department’s copy of requisition, purchase orderCompare to voucher packageTrace to competitive bids
GBW 8th ed., Ch. 12 14
CONTROL RISKReceiving
Major risksGoods received not counted, inspectedGoods received not compared to purchase
orders
GBW 8th ed., Ch. 12 15
TESTING CONTROLSReceiving
Obtain Receiving Department copy of receiving report for voucher sampleCompare receiving reportsReview receiving reports for evidence of
count, inspectionTrace receiving reports to receiving log
GBW 8th ed., Ch. 12 16
CONTROL RISKCash Disbursements, Recording
Major risksCash payments made to unauthorized
payeeDetails recorded in voucher register are
recorded for proper vendorTotals agree to general ledger
GBW 8th ed., Ch. 12 17
TESTING CONTROLSCash Disbursements, Recording Obtain canceled checks for voucher
packageExamine for signatures, endorsementsCompare detailed information about check
from voucher package to canceled checkTrace voucher packages, canceled checks
to postings○ Review for classification, accuracy○ Scan voucher register for unusual items
GBW 8th ed., Ch. 12 18
ASSESSING CONTROL RISK 2 Questions
Are controls effective?Can controls be relied upon?
If answer is yes to bothAssess control risk below maximumAssess detection risk above minimumRestrict substantive tests of sales,
receivables, cash
GBW 8th ed., Ch. 12 19