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Chapters 8

Chapters 8. Acquisition and Expenditure Cycle. 1. Internal Control. Acquisition of Goods or Services separate functions: authorization, purchasing, receiving, custody, record keeping documents and records: purchase requisition, purchase order, receiving report.

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Chapters 8

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  1. Chapters 8 Acquisition and Expenditure Cycle Chapters 8

  2. 1. Internal Control • Acquisition of Goods or Services • separate functions: authorization, purchasing, receiving, custody, record keeping • documents and records: purchase requisition, purchase order, receiving report Chapters 8

  3. 1. Internal Control (continued) • Controls over purchase of fixed assets • Acquired through acquisition cycle • Authorizations • Budget • Subsidiary ledger • Materiality • Capital v. revenue expenditures • Periodic physical inventory • Retirement Chapter 13

  4. Internal Control (continued) • Accounts Payable • steps: match all documents, check accuracy - compare numbers, code account distribution, approve for payment, record payable • documents and records: vendor’s invoice, voucher, voucher register, open purchase order file, unmatched receiving reports, unmatched vendor’s invoices, accounts payable trial balance, purchases journal Chapters 8

  5. Internal Control (continued) • Cash Disbursements • steps: pay from approved voucher, control check signing, mail payment, cancel voucher, record cash payment • documents and records: paid voucher file, cash disbursements journal • positive pay systems Chapters 8

  6. 2. Substantive Tests • Accounts Payable • Confirmations • Examine subsequent payments • Analytical procedures • Vouch transactions • Cutoff tests - purchases & cash disbursements • Reconcile recorded A/P to monthly statements • Examine unmatched receiving reports, purchase orders, and invoices • Recompute year-end accruals for accrued lia. Chapters 8

  7. 2. Substantive Tests (continued) • Accounts Payable • Existence and Occurrence • vouching, confirmation, cut-off tests, reconciling monthly statements • Rights and Obligations • vouching, confirmation • Completeness • examining subsequent payments, tracing, cutoff tests, confirmation, reconciling monthly statements, analytical procedures Chapters 8

  8. 2. Substantive Tests (continued) • Accounts Payable • Valuation • vouch recorded payables, confirmation • Presentation and Disclosure • compare statement presentation to GAAP • related party transactions, determine if any significant debit balances Chapters 8

  9. 2. Substantive Tests (continued) • Fixed Assets • Approach - tests of transactions • Vouch additions • Vouch disposals • Examine repairs and maintenance expense • Inspect assets • Search for unrecorded retirements • Examine title and/or tax statements • Test for impairments • Review depreciation • Examine lease contracts • Analytical procedures Chapter 13

  10. 2. Substantive Tests (continued) • Fixed Assets • Existence and Occurrence • observation, vouching additions, search for unrecorded retirements • Rights and Obligations • vouching, examine title and/or tax statements • Completeness • analytical procedures, examine title and/or tax statements, cut-off tests, review insurance coverage Chapter 13

  11. 2. Substantive Tests (continued) • Fixed Assets • Valuation • vouching transactions, review repairs and maintenance expense, test for impairments, review depreciation • Presentation and Disclosure • compare statement presentation to GAAP • related party transactions, pledged assets for loan, review gains/losses for proper presentation, review cost, BV, depreciation, useful lives for proper presentation Chapter 13

  12. 3. Frauds • Fraudulent disbursement schemes • Common and expensive frauds • Examples • fraudulent payments to shell company • duplicate payments • fraudulent payroll payments • personal purchases • expense reimbursements • check tampering Chapters 8

  13. 3. Frauds • Red flags • rounded amount invoices • amounts just below approval amounts • abnormal volume • sequential invoice numbers • photocopies of invoices • P.O. Boxes (with no other addresses) • no listed phone number • same vendor and employee addresses • multiple vendors at same location • examine services accounts Chapters 8

  14. Review Questions for Discussion • Chapter 8 8.1 8.2 8.5 8.7 8.9 8.10 8.11 8.12 8.15 Chapter 1

  15. Payroll Cycle • Functions • HR department • Hiring and firing • Supervision • Cost accounting • Payroll accounting • Check signing • Payroll distribution Chapters 8

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