Chapter 15—Auditing the Expenditure...
Transcript of Chapter 15—Auditing the Expenditure...
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Chapter 15Auditing the Expenditure Cycle Inherent and Control Risks Let us consider factors that may lead to misstatement of expenditure cycle transactions: --pressures on management to understate expenses to hit profitability targets --pressures on management to understate payables --a high volume of transactions --assets may be misappropriated --unauthorized purchases and cash disbursements
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2--Risk Assessment Auditors should consider such factors as: --the entitys ability to meet purchase transaction cash flow requirements --loss contingencies associated with purchase commitments --supplies availability --effect of cost increases --realizability of plant asset carrying values
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Recording Cash Disbursements Controls over the recording of cash disbursements include: --an independent check by an accounting supervisor of the agreement of the amounts journalized and posted to accounts payable with the check summary received from the treasurer --an independent check on the timeliness of recording by periodic comparisons of the dates of cash disbursements entries with the dates on copies of the checks --independently prepared bank reconciliations
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Example Audit Procedures --review selected invoices and look for evidence that the invoice has been doctored --perform a computerized search of the vendor list and look for PO box addresses, duplicate addresses, and vendors with no phone number --determine if vendors are listed in yellow pages of phone book. Call vendors if considered necessary. --perform a computerized match of the vendor list with a list of employees and look for matches of addresses or phone numbers. --perform a computerized sort of invoices by vendor and look for unusual sequencing or amount (indication of possible fictitious company). Look for unusual pricing and volume trends (indication of possible kickbacks).
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--review selected invoices and examine supporting documentation indicating goods or services were received. --perform a computerized search of payroll records to identify duplicate addresses, social security numbers, or bank accounts. --verify social security numbers by calling the social security administration. --review personnel files and look for those that contain little or no evidence of activity (for example, a lack of performance evaluations, requests for changes to withholdings, or retirement plan options).
Chapter 15Auditing the Expenditure Cycle