Kế toán, kiểm toán - Chapter 08: Acquisition and expenditure cycle learning objectives

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter 08 Acquisition and Expenditure Cycle Learning ObjectivesIdentify significant inherent risks in the acquisition and expenditure cycle.Describe the acquisition and expenditure cycle, including typical source documents and controls.Give examples of tests of controls over purchases of inventory and services.Explain the importance of the completeness assertion for the audit of accounts payable liabilities, and list some procedures for a search for unrecorded liabilities.Discuss audit procedures for other accounts affected by the acquisition and expenditure cycle.Specify some ways fraud can be found in the acquisition and expenditure cycle.Describe some common errors and frauds in the acquisition and expenditure cycle, and design some audit and investigation procedures for detecting them.Describe the payroll cycle, including typical source documents and controls8-2Inherent RisksUnrecorded liabilitiesNoncancelable purchase agreementsCapitalizing expenses8-3Acquisition and Expenditure Cycle: Typical ActivitiesPurchase Goods and ServicesDepartment requesting purchase of item(s) prepares a PURCHASE REQUISITIONBidding may be required on high dollar purchasesPurchasing prepares a PURCHASE ORDER approved by the appropriate person (usually dependent on dollar amount of PO)May be done electronically by EDIReceiving the Goods or ServicesAfter vendor approval, goods are received by company and evidenced by preparing a RECEIVING REPORTRecording the Asset or Expense and Related LiabilityVendor bills company for goods using a VENDOR'S INVOICEPaying the invoice through the cash disbursement process8-4Control ProceduresInformation processing controls Compare PO number on BOL with company POCompare quantities against receiving report and purchase orderCompare prices against quoted price or catalog listingMathematically verify vendor's invoiceDetermine when to pay invoice and prepare VOUCHERSeparation of dutiesAUTHORIZATION of the purchase is done by the purchasing department.CUSTODY of the inventory item(s) is held by the receiving department and, ultimately, the requesting department.Transactions are RECORDED by general accounting (control account) and accounts payable department (subsidiary accounts).RECONCILE liabilities to customer statements and general ledger account.Bids are received by someone independent of the purchasing decision.Physical controlsPrepare a receiving report upon initial receipt of inventoryCount and verify inventory quantities upon delivery to the inventory warehouseRestrict access to inventories by keeping them in a secured locationPerformance reviewsCompare purchases data to data from previous years or expected purchases dataReview bids to ensure that documentation exists regarding the selection of the vendor8-5Audit Evidence in Management Reports and Data FilesOpen purchase ordersUnmatched receiving reportsUnmatched vendor invoicesAccounts (vouchers) payable trial balancePurchases journalFixed asset reports8-6The Completeness AssertionSearch for Unrecorded LiabilitiesInquire of client about procedures for identifying and recording liabilitiesScan open purchase order fileExamine all UNMATCHED VENDOR STATEMENTS or INVOICESExamine all UNMATCHED RECEIVING REPORTS occurring near year-endTRACE from unpaid VOUCHERS in A/P ledger to receiving reportsConfirm A/P with NORMAL SUPPLIERS (even those with zero balances)Review CASH DISBURSEMENTS occurring after year-end8-7Other Accounts in CyclePrepaid ExpensesAccrued LiabilitiesExpensesInventoryProperty Plant and Equipment8-8Accrued LiabilitiesMajor differences between ACCRUED Liabilities and ACCOUNTS PAYABLEExamples include INTEREST, PROPERTY TAXES, WAGES, and INCOME TAXES PAYABLEThese payables are not normally INVOICED or EVIDENCED by the RECEIPT OF GOODSThese differences may make it more difficult to detect UNRECORDED ACCRUALS8-9Auditing Accrued Liabilities and Prepaid ExpensesAgree balances to PRIOR YEAR WORKPAPERSVerify PAYMENTSExamine UNDERLYING AGREEMENTSRECALCULATE amountsAgree EXPENSE ACCOUNTS to trial balanceSearch for UNRECORDED ACCRUALSReview CASH DISBURSEMENTS at year-endLook for expected accruals at other stages of the audit (BONDS, NOTES, employees paid on 15th, etc.)ANALYTICAL PROCEDURES8-10Income Taxes PayableExtremely complex areaUsually requires tax specialistVouch paymentsExamine correspondence with government agenciesFollow standard for auditing estimates8-11AUDITING PROPERTY, PLANT, AND EQUIPMENTGENERAL APPROACHSmall number of transactionsRelatively high dollar transactionsAuthorization of Transactions (Board of Directors) takes on added importance.Less concern for ACCESS to ASSETSMore concerned with UNRECORDED DISPOSALSAgree balances to prior year documentationPURCHASES OF PP&EVOUCH to INVOICE or COST RECORDSInspect TITLE VOUCH to BOARD MINUTES EXPENDITURES SUBSEQUENT TO ACQUISITIONVOUCH to INVOICE and WORK DESCRIPTIONS Consider propriety of classification (EXPENSE or CAPITALIZE)8-12AUDITING PROPERTY, PLANT, AND EQUIPMENTDISPOSAL OF PP&EVOUCH from PP&E to BOD MINUTES Vouch to cash receipts journal and validated deposit slipRecalculate gain/lossTRACE from BOD MINUTES to PP&E for disposals (COMPLETENESS)Look for unrecorded disposalsAgree balances to PRIOR YEAR WORKPAPERSExamine insurance policies, property tax records, etc. PHYSICALLY INSPECT or CONFIRM fixed assetsBoth existing and newly-acquired itemsConfirm assets LEASED to others under capital leases8-13AUDITING PROPERTY, PLANT, AND EQUIPMENTDEPRECIATION EXPENSERecalculate using USEFUL LIFE, SALVAGE VALUE, COST, and METHODEvaluate REASONABLENESS of USEFUL LIFE, SALVAGE VALUE, etc.Is depreciation consistent with COMPANY POLICY (half year conventions)?LEASE AGREEMENTSVerify proper treatment (Capitalized or Operating)Ensure disclosure in footnotes is appropriate8-14Auditing Cost and Expense AccountsAnalytical procedures (e.g. sales commissions)Agree to related balance sheet account (e.g. depreciation)Substantive tests of transactions (e.g. purchases)Vouch detail (e.g. legal expense)8-15Fraud Red FlagsPhotocopies of invoicesInvoices in numerical orderRound numbersSlightly below authorization thresholdsP.O. Boxes (with no other addresses)No listed phone #Vendor and Employee addresses the sameMultiple vendors at same location8-16