Group IV Reporters:

Auditing the Expenditure Cycle

ENRIQUEZ, Jayson ESCOBEDO, Xybelle NARVAEZ. Juana Marie PAZ, Gene Kelly RED, Sunshine RENIVA, Leandra ROMANA, Fatima Bianca ULAYE, Vanessa

PURCHASES AND CASH DISBURSEMENT PROCEDURES : BATCH PROCESSING TECHNOLOGY

Step 1: Data processing department Inventory control

Purchasing Department

Step 2: Data processing department Purchase Order

Receiving Department

Step 3: Data processing department Batch update of inventory

Accounts Payable

Step 4: Data processing department Validates vendors

Cash Disbursement

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

CASH DISBURSEMENT: REENGINEERED FULLY AUTOMATED

Receiving Department

Goods arrive at receiving department

Quantities received are entered on P.O per item

ADVATAGES OF BATCH AUTOMATED SYSTEM OVER MANUAL BATCH

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

REENGINEERED SYSTEM- CONTROL IMPLICATIONS

Segregation of duties Accounting records and access controls

PAYROLL PROCEDURES
General expenditure procedures that apply to all vendors will not apply to employees Writing checks to employees DRAWBACKS to requires special controls using regular A.P. General expenditure and cash procedures are designed to disbursements accommodate relatively systems to do payroll smooth flow of transactions

REENGINEERED PAYROLL SYSTEM

-Often integrated within the Human Resource Management System (HRM)
Human Resource Management System (HRM) captures and processes a wide range of personnel-related data.

REENGINEERED PAYROLL SYSTEM

-Differs from simple automate system in the following ways:
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

REENGINEERED PAYROLL SYSTEM

- Key Operating Features:

Personnel Cost accounting Timekeeping

Data processing

EXPENDITURE CYCLE AUDIT OBJECTIVES

Output Control

Process Control

Input Control

EXPENDITURE CYCLE AUDIT OBJECTIVES

Input control
Data validation controls Testing validation controls Batch controls Testing batch controls

Purchases authorization controls

Testing purchases authorization controls Employee authorization Testing employee authorization procedures

EXPENDITURE CYCLE AUDIT OBJECTIVES

Process controls
File update controls
Access controls
Risks specific to expenditure cycle: 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

Testing access controlsPhysical controls

Purchase system controls Payroll system controls

Testing of physical controls

EXPENDITURE CYCLE AUDIT OBJECTIVES

Output controls Accounts payable change report

Transaction logs
Transaction listing Logs of automatic transactions Unique transaction identifiers Error listing

Testing output controls

EXPENDITURE CYCLE SUBSTANTIVE TESTS

Expenditure Cycle Risks and Audit Concerns
Potential for understatement of liabilities and related expenses.

Understanding Data
File structures: Inventory file Purchase order file Purchase order line item file Receiving report file Disbursement voucher file

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