Ref.

: A2

Understand the Flows of Significant Classes of

Transactions, including Walkthrough Cash
Disbursements
Client:
Period End:

Global Home Depot, Inc.,

December 2014

Prepared By:
Reviewed By:

Ma. Teresa Ypil

Nathallie
Cabaluna

Professional standards require us to obtain an understanding of the flows of transactions sufficient to identify and
understand a) major classes of transactions in the entitys operations; b) how such transactions are initiated; c)
significant accounting records, supporting documents and accounts in the financial statements; and d) the accounting
and financial reporting process, from the initiation of significant transactions and other events to their inclusion in the
financial statements.

Related Accounts
Cash disbursements typically have a significant effect on the following accounts (modify account names as appropriate
and list other accounts not pre-populated below):
Cash
Accounts payable
Accrued Expenses
Purchases

Principal Steps in the Cash Disbursements Flow of Transactions

Document below the job title(s) of the individual(s) responsible for each of the steps in the cash disbursements flow of
transactions. To help ensure that we properly consider the effects of computer processing in making our risk assessments
and developing our audit plan, indicate those steps where computer processing is involved by placing an X in the
column for the appropriate step.
Whenever a certain inventory level goes below the reorder point, the Inventory Clerk will report to the
Purchaser for requisitioning. The Purchaser will determine the supplier and will send copy of the purchase
order to the supplier (via e-mail or by fax), to the Accounting Office and to the one who will receive the goods
(a copy with no details as to the quantity). Upon receipt of the goods, the one who receives will count them and
will notify the Accounting Office of such receipt by providing a receiving report. The Accounting Office will
compare the receiving report with the purchase order and the suppliers invoice, and will record the related
liability. The Accounting Office will send the necessary documents for payment to the President. The President
will review the accuracy and authenticity of the documents prior to the approval of the vouchers for payment.
Then the check will be prepared and mailed to the supplier and the source documents will be stamped PAID.
The Accounting Office will then update the Accounts Payable general and subsidiary ledger.
Process Step
1.
2.
3.

4.
5.

6.
7.

When inventory runs lower than the reorder point, a report for
requisitioning will be sent
Supplier will be chosen and will be sent with a copy of the
purchase order.
Upon receipt of goods, receiver will count them and input
them in a blind receiving report and will notify the Accounting
Office of such receipt by providing receiving report.
Receiving report, purchase order and the suppliers invoice
will be compared and the liability will be recorded.
Necessary documents will be sent to the President for
payment. The President will review the accuracy and
authenticity of the documents prior to the approval of the
vouchers for payment.
Check will be prepared and mailed to the supplier and the
source documents will be stamped, PAID
Update the Accounts Payable general and subsidiary ledger

Performed By (Job Title Only)

Inventory Clerk
Purchaser
Receiving
personnel

department

Accountant
Payable)
President

(Accounts

Treasurer
Accountant

(Accounts

Ref.:

Understand the Flows of Significant Classes of

Transactions, including Walkthrough Cash
Disbursements
Payable)
Provide any other details that are necessary to understand the initiation, processing, and recording of cash
disbursements:

What Could Go Wrongs (WCGW)

What if the company issued a check for payment
without receiving any request for payment?
What if there is a material discrepancy between the
quantities in the receiving report and purchase order
whereby understating inventory, and the company
has already issued the check to be paid to the
supplier.?
What makes sure that all checks issued corresponds
to any payables that are valid?
What makes sure that all purchase order are
properly approved?
What makes sure no double payment occurred?
What makes sure that purchases are valid?

Consideration

Accounts and Assertions Affected by WCGW

Balance Sheet
Income Statement
Cash may be understated due Only balance sheet accounts
to double payment; occurrence are affected
Cash may be understated, Cost of goods sold will be
inventory
understated, overstated
and
thus
disbursements are overstated- understating Net Incomeoccurrence
Completeness and Existence
Cash may be understated,
disbursements
overstatedoccurrence
Payables may be overstatedauthorization
Overstatement
of
disbursement- Occurrence
Overstatement of PayablesOccurrence

of

Rights and obligation

Rights and obligation

Only balance sheet accounts
are affected
Overstating Net Income- right
and obligation

Control

Procedures

Professional standards require us to obtain an understanding of a clients control procedures sufficient to develop the
audit plan. Document below the control procedures that the client has put in place to prevent or detect errors in
processing and recording transactions for this accounting process. It is not necessary to perform walkthroughs of these
controls unless we intend to assess control risk below the maximum. The absence of control procedures may require
additional audit procedures relating to one or more financial statement assertions for the account(s) affected.
Yes
Are bank reconciliations performed and reviewed by supervisory personnel, with reconciling
items followed-up on and resolved in a timely manner?
Is someone responsible for ensuring a proper cut-off (i.e., all cash disbursements are recorded in
the period made)?
Are cash disbursement journals reviewed both for unusual items and gaps in the numerical
sequence of disbursements?
Is appropriate documentation (e.g. voucher package) included when cheques are prepared and
signed?
Are all electronic transfers of funds properly approved?

/
/
/
/
/

Are there only a few authorized cheque signers?

Are limits established for cheque signing authority or are cheques over a certain amount required
Understand the Flows of Transactions
Cash disbursements - SBDP

No

(R12-07)

/
Page 2/3

Ref.: A2

Understand the Flows of Significant Classes of

Transactions, including Walkthrough Cash
Disbursements
Client:
Period End:

Global Home Depot, Inc.,

December 2014

Prepared By:
Reviewed By:

to be counter-signed?
Is access to blank cheques and signature plates controlled?

Ma. Teresa Ypil

Nathallie
Cabaluna

Walkthrough
Describe the walkthrough tests performed on the flow of transactions. In so doing determine that the walkthrough
encompasses the entire flow of initiating, authorizing, recording, processing and reporting individual transactions and,
to the extent necessary, related controls. Use original source documentation and information technology that the client
personnel typically would use in the flow of transactions:

Performance Considerations
a. Inquire of personnel about their understanding of what is required by the prescribed
procedures and, to the extent necessary, controls to determine whether the processing
procedures are performed as originally understood and on a timely basis.

Yes/No/
N/A
YES

Inquired of: Understanding the required procedures Date: 9/30/14

Initials &
Date
MTDY
9/30/14
NC
11/30/14

Key findings : Some employees has different opinions to the prescribed procedures yet, they
all have he same gist. Employees has the proper understanding on how to do the process and
procedures on the timely basis.
b. Note any exceptions to the prescribed procedures and, to the extent necessary, controls
identified and the impact this has on the audit.

YES

c. In instances where we have identified a significant risk and are required to assess control
risk, did the walkthrough procedures include an appropriate evaluation of the controls
sufficient to determine the effectiveness of the design of the controls and whether controls
have been implemented?
d. Did our inquiries of company personnel include follow-up questions about what company
personnel do when they encounter errors, the types of errors they have encountered, what
happened as a result of finding errors, and how the errors were corrected?

YES

e. In instances where we identified significant changes in the flow of transactions did we

evaluate the nature of the change to determine whether to walkthrough transactions
processed both before and after the change?

YES

YES

MTDY
9/30/14
NC
11/30/14
MTDY
9/30/14
NC
11/30/14
MTDY
9/30/14
NC
11/30/14
MTDY
9/30/14
NC
11/30/14

Conclusion (Check box to confirm conclusion)

Our walkthrough procedures have confirmed our understanding of the cash disbursements flow of transactions as
evidenced by our system documentation.