Auditing the Expenditure

Cycle

Roberto Donovan (MAT81667)

Irfan Gaffar Adnan (MAT81700)
Chapter Overview
The Expenditure Cycle
Spesific Audit Objectives for the
Expenditure Cycle
◦ Existence or Occurrence
◦ Completeness
◦ Rights and Obligations
◦ Valuation or Allocation
◦ Presentation and Disclosure
Understanding the Entity and
Environment
Inherent Risk, Including the Risk of
Fraud
◦ Management Misstatement of Expenditures
◦ Understate expenses
◦ Understate payables

◦ Other Misstatement Factors

◦ High volume of transactions
◦ Unauthorized purchases
◦ Misappropriation
◦ Duplication of payments
Analytical Procedures
Consideration of Internal Control
Components
◦ Control Environment

◦ Risk Assessment

◦ Information and Communication

◦ Monitoring
Purchase Transactions – Documents and
Records
◦ Purchase requisition

◦ Purchase order

◦ Approved vendor master file

◦ Open purchase order file

◦ Receiving report

◦ Receiving file

◦ Vendor Invoice
Purchase Transactions – Common
Documents and Records
◦ Voucher

◦ Exception reports

◦ Voucher summary

◦ Voucher register

◦ Purchase transactions file

◦ Accounts payable master file

◦ Suspense files
Purchase Transactions – Functions and
Control Activities
◦ Initiating Purchases
◦ Placing vendors on an authorized vendor list
◦ Requisitioning goods and services
◦ Preparing purchase orders

◦ Receipt of Goods and Services

◦ Receiving the goods
◦ Storing goods received for inventory
◦ Returning goods to vendor

◦ Recording Liabilities
 Cash Disbursement Transactions– Common
Documents and Records
◦ Check

◦ Check Summary

◦ Cash Disbursements Transaction File

◦ Cash Disbursements Journal or Check Register

Cash Disbursement Transactions-
Function and Control Activities
◦ Computerized System
◦ Paying the Liability
◦ Recording the Disbursement

◦ Manual System
◦ Paying the Liability
◦ Recording the Disbursement
Purchase Adjustment Transactions–
Common Documents and Records
◦ Purchase Return Authorization

◦ Shipping Report

◦ Debit Memo
Purchase Adjustment Function and Controls

◦ Purchase Returns and Allowances

◦ Other Controls

◦ Tests of Controls
Substantive Tests of Accounts Payable
Balances
◦ Determining Detection Risk for Tests of Details
◦ Existence and Occurrence

◦ Completeness

◦ Rights and Obligations

◦ Valuation and Allocation

◦ Presentation and Disclosure

Designing Substantive Tests
◦ Initial Procedures

◦ Analytical Procedures
 Designing Substantive Tests
◦ Tests of Details of Transactions
◦ Vouch Recorded Payables to Supporting Documentation

◦ Perform Cutoff Tests

◦ Purchases cutoff tests
◦ Cash disbursement cutoff tests
◦ Purchase return cutoff tests

◦ Perform Search for Unrecorded Payables

◦ Subsequent payments
Designing Substantive Tests
◦ Tests of Details of Balances
◦ Accounts Payable Confirmations

◦ Reconcile Unconfirmed Payables to Vendor Statements

◦ Tests of Details of Disclosures