AEB14SMCH18v2GE.docx

1、AEB14SMCH18v2GEChapter 18Audit of the Acquisitions and Payment Cycle:Tests of Controls, Substantive Tests of Transactions,and Accounts Payable Review Questions18-1 a. Asset accounts: Office supplies Delivery equipment Machinery and equipment Land Cash in bank Prepaid expenses b. Liability accounts:

2、Accounts payable Accrued property taxes Accrued insurance Other accrued liabilities c. Expense accounts: Purchases, purchase returns & allowances, purchases discounts (COGS accounts) Rent expense Legal expense Fines and penalties Advertising expense Repairs and maintenance Depreciation expense Utili

3、ties expense Property tax expense Administrative expenses Income tax expense18-2TRANSACTION-RELATED AUDIT OBJECTIVEPOSSIBLEINTERNAL CONTROLSCOMMON TESTSOF CONTROLS1. Recorded cash disbursements are for goods and services actually received (occurrence). There is adequate segregation of duties between

4、 accounts payable and custody of signed checks. Supporting documentation is examined before signing of checks by an authorized person. Approval of payment on supporting documents at the time checks are signed. Discuss with personnel and observe activities. Discuss with personnel and observe activiti

5、es. Examine indication of approval.2. Existing cash disbursement transactions are recorded (completeness). Checks are prenumbered and accounted for. The bank reconciliation is prepared monthly by an employee independent of recording cash disbursements or custody of assets. Account for a sequence of

6、checks. Examine bank reconciliations and observe their preparation.3. Recorded cash disbursement transactions are accurate (accuracy). Calculations and amounts are internally verified. The bank reconciliation is prepared monthly by an independent person. Examine indication of internal verification.

7、Examine bank reconciliations and observe their preparation. 4. Cash disbursement transactions are properly included in the accounts payable master file and are properly summarized (posting and summarization). Accounts payable master file contents are internally verified. Accounts payable master file

8、 or trial balance totals are compared with general ledger balances. Examine indication of internal verification. Examine initials on general ledger accounts indicating comparison.5. Cash disbursement transactions are properly classified (classification). An adequate chart of accounts is used. Accoun

9、t classifications are internally verified. Examine procedures manual and chart of accounts. Examine indication of internal verification.6. Cash disbursement transactions are recorded on the correct dates (timing). Procedures require recording of transactions as soon as possible after the check has b

10、een signed. Dates are internally verified. Examine procedures manual and observe whether unrecorded checks exist. Examine indication of internal verification.18-3TRANSACTION-RELATED AUDIT OBJECTIVEPOSSIBLEINTERNAL CONTROLSCOMMON TESTSOF CONTROLS1. Recorded acquisitions are for goods and services rec

11、eived, consistent with the best interests of the client (occurrence). Purchase requisition, purchase order, receiving report, and vendors invoice are attached to the voucher. Acquisitions are approved at the proper level. Computer accepts entry of purchases only from authorized vendors in the vendor

12、 master file. Documents are cancelled to prevent their reuse. Vendors invoices, receiving reports, purchase orders, and purchase requisitions are internally verified. Examine documents in voucher package for existence. Examine indication of approval. Attempt to input transactions with valid and inva

13、lid vendors. Examine indication of cancellation. Examine indication of internal verification.2. Existing acquisition transactions are recorded (completeness). Purchase orders are prenumbered and accounted for. Receiving reports are prenumbered and accounted for. Vouchers are prenumbered and accounte

14、d for. Account for a sequence of purchase orders. Account for a sequence of receiving reports. Account for a sequence of vouchers.3. Recorded acquisition transactions are accurate (accuracy). Calculations and amounts are internally verified. Batch totals are compared with computer summary reports. A

15、cquisitions are approved for prices and discounts Examine indication of internal verification. Examine file of batch totals for initials of data control clerk; compare totals to summary reports. Examine indication of approval.4. Acquisition transactions are properly included in the accounts payable

16、and inventory master files, and are properly summarized (posting and summarization). Accounts payable master file contents are internally verified. Accounts payable master file or trial balance totals are compared with general ledger balances. Examine indication of internal verification. Examine ini

17、tials on general ledger accounts indicating comparison.18-3 (continued)TRANSACTION-RELATED AUDIT OBJECTIVEPOSSIBLEINTERNAL CONTROLSCOMMON TESTSOF CONTROLS5. Acquisition transactions are properly classified (classification). Adequate chart of accounts is used. Account classifications are internally v

18、erified. Examine procedures manual and chart of accounts. Examine indication of internal verification.6. Acquisition transactions are recorded on the correct dates (timing). Procedures require recording transactions as soon as possible after the goods and services have been received. Dates are inter

19、nally verified. Examine procedures manual and observe whether unrecorded vendors invoices exist. Examine indication of internal verification.18-4 Auditing standards require that the tests of controls and substantive tests of transactions cover the entire accounting period in order to determine that

20、the system was operating in a consistent manner throughout the period. In selecting the number of items for testing, the auditor must determine the sample size, statistically or nonstatistically, such that it is likely to be representative of the actual conditions of the population of all transactio

21、ns. In testing items that are periodic procedures rather than individual transactions (such as monthly bank reconciliations), the auditor must determine the appropriate timing to determine that those procedures are operating properly.18-5 The importance of cash discounts to the client is that the cl

22、ient can produce a substantial savings if it makes use of the cash discounts available. The auditor should examine vouchers and invoices to determine whether discounts are being taken in accordance with the terms available. 18-6 The difference in the purpose of the steps is that Procedure 1 ascertai

23、ns whether all existing acquisitions are recorded properly (completeness and accuracy), whereas Procedure 2 is designed to determine whether recorded acquisitions are proper (occurrence and accuracy). Although the two procedures test opposite objectives (completeness and occurrence), they are simila

24、r in that each is designed to determine that the vendors name, type of material and quantity purchased, and total amount of the acquisition agree with the receiving report, vendors invoice, and acquisitions journal entries.18-7 It is difficult to control blank or voided checks (as well as checks iss

25、ued before they are mailed) without having a printed prenumbered system of blank checks. Without prenumbering, unauthorized and unrecorded checks may be more easily issued without detection until after they have cleared the bank. The auditor can compensate for poor control over checks by reconciling

26、 recorded cash disbursements with cash disbursements on the bank statement for a test period.18-8 A voucher is a document used by an organization to establish a formal means of recording and controlling acquisitions. A voucher register is a journal for recording the vouchers for the acquisition of g

27、oods and services. The use of a voucher system improves control over the recording of purchases by facilitating the recording in numerical order at the earliest possible date, the point at which the invoice is received.18-9 The point at which goods and services are received is ordinarily when title

28、to the goods and services passes and a liability that should be included in the financial statements is established.18-10 The acquisition and payment cycle is related to the inventory accounts in that normally all purchases of raw materials in the case of a manufacturing operation or merchandise in

29、the case of a distribution company are recorded through this cycle. If the tests of internal controls of the acquisition and payment cycle indicate that proper controls exist to ensure that the proper cost is used in valuing the inventory and that new purchases of inventory are recorded at the prope

30、r time, in the proper amount, and in the proper account, tests concerned with the accuracy and cutoff of the inventory accounts may be reduced from that level required if the controls were not adequate.18-11 The acquisition and payment cycle includes the recording of liabilities that are set up in t

31、he accounts payable account. If the auditor finds that the internal controls in the acquisition and payment cycle are sufficient to ensure that accounts payable are recorded in the proper amount and at the proper time, reconciling the vendors statements and testing the cutoff as year-end procedures

32、of the accounts payable balance may be greatly reduced.18-12 The procedure will most likely uncover the misstatement in item b. The search for unrecorded invoices is designed to detect an understatement of accounts payable.18-13 Unless evidence is discovered which indicates that a different approach s