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7/28/2019 Auditing Expenditure Cycle
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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
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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
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CASH DISBURSEMENT:
REENGINEERED FULLY AUTOMATED
Goods arrive atreceiving department
Quantities received areentered on P.O per item
Receiving Department
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SYSTEM
OVER MANUAL BATCH
-Improved inventorycontrol
-Better cashmanagement
-Less time lag
-Better purchasing timemanagement
-Reduction of paperdocuments
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REENGINEERED SYSTEM- CONTROL
IMPLICATIONS
Segregation of
duties
Accounting
records andaccess controls
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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
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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)
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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:
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REENGINEERED PAYROLL SYSTEM
Personnel
Cost accounting
Timekeeping
Data processing
- Key Operating Features:
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Input Control
ProcessControl
OutputControl
EXPENDITURE CYCLE AUDITOBJECTIVES
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EXPENDITURE CYCLE AUDIT
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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
EXPENDITURE CYCLE AUDIT
OBJECTIVES
Process contro ls
EXPENDITURE CYCLE AUDIT
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Accounts payable change report
Transaction logs
Transaction listing
Logs of automatic transactions
Unique transaction identifiers Error listing
Testing output controls
EXPENDITURE CYCLE AUDIT
OBJECTIVES
Output contro ls
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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
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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
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