AUDITINGCHAPTER 12.ppt

GBW 8th ed., Ch. 12 AUDITINGCHAPTER 12 Purchases Cash Disbursements Transactions By David N. Ricchiute 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 NATURE EXPENDITURE/DISBURSEMENT CYCLE Goods, services acquired from vendors, employees in exchange for obligations to pay Obligations to vendors, employees are paid EXPENDITURE, DISBURSEMENT CYCLE Flow of information Purchase requisition received to purchase goods Purchasing department issues purchase order to vendor for purchase of goods Receiving department creates report that identifies information about goods received Accounts payable receives vendor’s invoice Accounts payable creates voucher to authorize payment DOCUMENTS Purchase requisition Request to purchase goods Purchase order Request issued by Purchasing dept. to vendor Receiving report Identifies information about goods received Vendor’s invoice Formal notice amount, terms of payment Voucher package Voucher supporting documents 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 CASH DISBURSEMENTS Process Voucher 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 INTERNAL CONTROL RISK Controls Risks ASSESSING CONTROL RISKObtain Understanding Review Sarbanes-Oxley Section 404 documentation for sales process Document the client’s system Flowchart, questionnaire, narrative Perform transaction walk