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    Ch10 - Auditing Expenditure Cycle

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    Rizka Furqorina
    This document discusses auditing the expenditure cycle, including purchases, cash disbursements, and payroll. It describes the typical steps in a batch-processed and fully automated expenditure cycle. It then lists the objectives for auditing input controls, process controls, output controls, and performing substantive tests on the expenditure cycle. The overall purpose is to outline the key components and controls in the expenditure cycle and the relevant audit procedures.

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    Ch10 - Auditing Expenditure Cycle

    Uploaded by

    Rizka Furqorina
    1K views21 pages
    This document discusses auditing the expenditure cycle, including purchases, cash disbursements, and payroll. It describes the typical steps in a batch-processed and fully automated expenditure cycle. It then lists the objectives for auditing input controls, process controls, output controls, and performing substantive tests on the expenditure cycle. The overall purpose is to outline the key components and controls in the expenditure cycle and the relevant audit procedures.

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    Ch10_Auditing Expenditure Cycle

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    This document discusses auditing the expenditure cycle, including purchases, cash disbursements, and payroll. It describes the typical steps in a batch-processed and fully automated expenditure cycle. It then lists the objectives for auditing input controls, process controls, output controls, and performing substantive tests on the expenditure cycle. The overall purpose is to outline the key components and controls in the expenditure cycle and the relevant audit procedures.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    1K views21 pages

    Ch10 - Auditing Expenditure Cycle

    Uploaded by

    Rizka Furqorina
    This document discusses auditing the expenditure cycle, including purchases, cash disbursements, and payroll. It describes the typical steps in a batch-processed and fully automated expenditure cycle. It then lists the objectives for auditing input controls, process controls, output controls, and performing substantive tests on the expenditure cycle. The overall purpose is to outline the key components and controls in the expenditure cycle and the relevant audit procedures.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
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    The document discusses the expenditure cycle process and how it has been reengineered to be fully automated through the use of technology. It also discusses various audit objectives, controls, risks and substantive tests for auditing the expenditure cycle.

    The main steps discussed include purchasing/receiving, cash disbursement, and payroll. Purchasing and receiving involve purchase orders, goods receipt, updating inventory. Cash disbursement involves payment of invoices, updating accounts payable and cash accounts. Payroll involves timekeeping, payment of employees.

    Controls discussed include input controls, validation controls, batch controls, authorization controls, access controls, physical controls, file update controls, sequence checks, reconciliation of documents. Testing of these controls is also mentioned.

    Chapter 10:

    Auditing the Expenditure Cycle

    IT Auditing & Assurance, 2e, Hall & Singleton

    PURCHASES: BATCH PROCESSING


    Step 1: Data processing department inventory control
    Purchasing Department

    Step 2: Data processing department P.O.


    Receiving Department

    Step 3: Data processing department batch update of inventory


    Accounts Payable

    Step 4: Data processing department validates vendors


    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: BATCH PROCESSING


    Step 5: Data processing department scans for items due and prints checks for items received Step 6: Cash disbursements department reconciles checks, submits checks to management for signature Step 7: Accounts payable matches copies of checks with open vouchers, closes them and files documents Concludes expenditure cycle
    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: REENGINEEREDFULLY AUTOMATED


    Data processing steps performed automatically:
    1. Inventory file scanned for items and reorder points 2. Purchase requisition record for all items needing replenishment 3. Consolidate requisitions by vendor 4. Retrieve vendor mailing information 5. P.O. prepared and sent to vendor (EDI) 6. Open P.O. record added for each transaction 7. List of P.O. sent to purchasing department
    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: REENGINEERED FULLY AUTOMATED


    Goods arrive at receiving department Quantities received entered per item

    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: REENGINEEREDFULLY AUTOMATED


    Data processing steps performed automatically:
    1. Quantities keyed matched to open P.O. record 2. Receiving report file record added 3. Update inventory subsidiary records 4. G.L. inventory updated 5. Record removed from open P.O. file and added to open A.P. file, due date established
    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: REENGINEEREDFULLY AUTOMATED


    Each day, due date filed of A.P. are scanned for items where payment is due

    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: REENGINEEREDFULLY AUTOMATED


    Data processing steps performed automatically:
    1. Checks are printed, signed and distributed to mailroom (unless EDI/EFT) 2. Payments are recorded in check register file 3. Items paid are transferred from open A.P. to closed A.P. file 4. G.L.- A.P. and cash accounts are updated 5. Appropriate reports are transmitted to A.P. and cash disbursements departments for review

    IT Auditing & Assurance, 2e, Hall & Singleton

    CASH DISBURSEMENT: REENGINEEREDFULLY AUTOMATED


    Control implications
    General in nature Similar to those of Chapter 9

    IT Auditing & Assurance, 2e, Hall & Singleton

    BATCH AUTOMATED SYSTEM VS. MANUAL BATCH


    Improved inventory control Better cash management Less time lag Better purchasing time management Reduction of paper documents

    IT Auditing & Assurance, 2e, Hall & Singleton

    REENGINEERED SYSTEM VS. BATCH AUTOMATED SYSTEM


    Segregation of duties
    Accounting records and access controls

    IT Auditing & Assurance, 2e, Hall & Singleton

    PAYROLL PROCEDURES
    Drawbacks to using regular A.P. and cash disbursements systems to do payroll
    General expenditure procedures that apply to all vendors will not apply to employees Writing checks to employees requires special controls General expenditure procedures are designed to accommodate relatively smooth flow of transactions
    IT Auditing & Assurance, 2e, Hall & Singleton

    REENGINEERED PAYROLL SYSTEM


    Often integrated with H.R. Differs from previous automate system
    Operations departments transmit transactions to D.P. electronically Direct access to files are used for data storage Many processes are now performed in real time
    IT Auditing & Assurance, 2e, Hall & Singleton

    REENGINEERED PAYROLL SYSTEM


    Personnel Cost accounting Timekeeping Data processing
    1. 2. 3. 4. 5. 6. 7. Labor costs are distributed to accounts Online labor distribution summary Online payroll register Employee records are updated Payroll checks are prepared and signed Disbursement system generates check to fund the payroll imprest account G.L. updated
    IT Auditing & Assurance, 2e, Hall & Singleton

    EXPENDITURE CYCLE AUDIT OBJECTIVES


    Input controls
    Data validation controls Testing validation controls Batch controls Testing batch controls Purchases authorization controls Testing purchases authorization controls Employee authorization Testing employee authorization procedures
    IT Auditing & Assurance, 2e, Hall & Singleton

    EXPENDITURE CYCLE AUDIT OBJECTIVES


    Process controls
    File update controls
    Sequence check control Liability validation control Valid vendor file Testing file update controls
    Warehouse security Moving assets promptly when received Paying employees by check vs. cash Risks
    Employees with access to A.P. subsidiary file Employees with access to attendance records Employees with access to both cash and A.P. records Employees with access to both inventory and inventory records

    Access controls

    Testing access controls


    IT Auditing & Assurance, 2e, Hall & Singleton

    EXPENDITURE CYCLE AUDIT OBJECTIVES


    Process controls
    Physical controls
    Purchase system controls
    Segregation of inventory control from warehouse Segregation of G.L. and A.P. from cash disbursements Supervision of receiving department
    Inspection of assets Theft of assets Reconciliation of supporting documents: P.O., receiving report, suppliers invoice

    Payroll System controls


    Verification of timecards Supervision Paymaster Payroll imprest account

    Testing of physical controls


    IT Auditing & Assurance, 2e, Hall & Singleton

    EXPENDITURE CYCLE AUDIT OBJECTIVES


    Process controls
    Output controls
    A.P. change report Transaction logs Transaction listing Logs of automatic transactions Unique transaction identifiers Error listing Testing output controls
    IT Auditing & Assurance, 2e, Hall & Singleton

    EXPENDITURE CYCLE SUBSTANTIVE TESTS


    Risks and audit concerns Understanding data
    Inventory file Purchase order file Purchase order line item file Receiving report file Disbursement voucher file File preparation procedures
    IT Auditing & Assurance, 2e, Hall & Singleton

    EXPENDITURE CYCLE SUBSTANTIVE TESTS


    Testing accuracy and completeness assertions Review disbursement vouchers for unusual trends and exceptions
    Accurate invoice prices

    Testing completeness, existence, rights and obligations assertions


    Searching for unrecorded liabilities Searching for unauthorized disbursement vouchers Review of multiple checks to vendors Auditing payroll and related records
    IT Auditing & Assurance, 2e, Hall & Singleton

    Chapter 10:
    Auditing the Expenditure Cycle

    IT Auditing & Assurance, 2e, Hall & Singleton

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