purchases and disbursements

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Purchases and disbursements. TOPICS. Nature of expenditure/disbursement cycle Flow of information Auditors assessment of control risk Audit of internal control for purchases, cash disbursements Computer auditing, sampling, tests of controls Assurance, consulting services. - PowerPoint PPT Presentation

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  • GBW 8th ed., Ch. 12

  • TOPICSNature of expenditure/disbursement cycleFlow of informationAuditors assessment of control riskAudit of internal control for purchases, cash disbursementsComputer auditing, sampling, tests of controlsAssurance, consulting servicesGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • NATURE EXPENDITURE/DISBURSEMENT CYCLEGoods, services acquired from vendors, employees in exchange for obligations to payObligations to vendors, employees are paidGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • DFD of Purchases System

  • EXPENDITURE, DISBURSEMENT CYCLEFlow 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 vendors invoiceAccounts payable creates voucher to authorize paymentGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • DOCUMENTSPurchase requisitionRequest to purchase goodsPurchase orderRequest issued by Purchasing dept. to vendorReceiving reportIdentifies information about goods receivedVendors invoiceFormal notice amount, terms of paymentVoucher packageVoucher & supporting documentsGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • CONTROLS OVER PURCHASINGPurchase 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 AccountingGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • CASH DISBURSEMENTSProcessVoucher package sent to Treasury department (separate from accounts payable)Treasury department reviews, reconciles, authorizes paymentChecks drawn for paymentMay require 2 signatures over a limitGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • INTERNAL CONTROL & RISKControls Risks

    GBW 8th ed., Ch. 12*

    Authorization

    Prenumbered receiving reportsRecording controlsRestricted accessUnauthorized purchases, vendorsGoods received not ordered, damagedReceived not recorded, used

    Goods, records, forms misused

    GBW 8th ed., Ch. 12

  • ASSESSING CONTROL RISKObtain UnderstandingDocument the clients systemFlowchart, questionnaire, narrativePerform transaction walk-throughIdentify control activitiesTest controls to reduce control risk below maximumAssess control riskGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • TEST OF CONTROLSPurchasing, DisbursementsProvide a reasonable degree assurance that employees comply with managements proceduresPurchasingProperly authorized, executed, recordedDisbursementsPayments remitted, recorded promptlyGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • CONTROL RISKPurchasingMajor risksUnauthorized purchasesNon-competitive pricesGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • TESTING CONTROLSPurchasingSelect random sample paid voucher packagesExamine for cancellation, authorization, detailsObtain Purchasing Departments copy of requisition, purchase orderCompare to voucher packageTrace to competitive bidsGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • CONTROL RISKReceivingMajor risksGoods received not counted, inspectedGoods received not compared to purchase ordersGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • TESTING CONTROLSReceivingObtain Receiving Department copy of receiving report for voucher sampleCompare receiving reportsReview receiving reports for evidence of count, inspectionTrace receiving reports to receiving logGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • CONTROL RISKCash Disbursements, RecordingMajor risksCash payments made to unauthorized payeeDetails recorded in voucher register are recorded for proper vendorTotals agree to general ledgerGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • TESTING CONTROLSCash Disbursements, RecordingObtain canceled checks for voucher packageExamine for signatures, endorsementsCompare detailed information about check from voucher package to canceled checkTrace voucher packages, canceled checks to postingsReview for classification, accuracyScan voucher register for unusual itemsGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • ASSESSING CONTROL RISK2 QuestionsAre 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, cashGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

  • POTENTIAL ERRORS, FRAUDSCash disbursed to unauthorized partiesDuplicate payments madeAccount balances inaccurateGBW 8th ed., Ch. 12*

    GBW 8th ed., Ch. 12

    *The time lag splits the expenditure transaction cycle into two phasesphysical phase (purchasing cycle)financial phase (cash disbursements)The payroll cycle is typically kept separate from the other cash disbursements

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