Chapter 10

Question 1

Expenditures Cycle Procedures

Answer 1

1) approve purchase (purchase requisition - permission to make purchase)
2) select vendor
3) make purchase (PO)
4) process receiving transaction (receiving report)
5) approve payment (match invoice, PO, and receiving report - disbursement voucher)
6) cash disbursement (check)

Question 2

Payroll Procedures

Answer 2

1) merge HR data with PR data (new employees, pay rates, deductions…every pay period)
2) approve time and attendance - supervisor reviews hours and signs off (magnetic card or time card)
3) process payroll
4) make payment (payroll check)

Question 3

Input Controls

Answer 3

• data validation controls
• batch controls
• access controls
• physical controls

Question 4

Data Validation Controls (audit test)

Answer 4

• input control
• missing data, alpha-numeric, range, limit, validity, check digit
• AT - if system development and maintenance controls are good, less testing is needed; use test data to examine program logic

Question 5

Batch Controls (audit test)

Answer 5

• input control
• record counts, batch totals, and hash totals
• AT - reconcile transmittal records for batches to the batch control log

Question 6

Access Controls (audit test)

Answer 6

• input control
• guards, alarms, safes
• passwords, firewalls
• AT - verify existence of firewall, data encryption, and password controls; test password controls by attempting to logon as an unauthorized user

Question 7

Physical Controls (audit test)

Answer 7

• input control
• segregation of duties (inventory recording from inventory custody; cash disbursement from AP recording and payment authorization)
• supervision and independent verification (find documents that corroborate invoice from vendor)
• AT - review organizational structure; review systems development and maintenance controls

Question 8

Payroll Segregation of Duties

Answer 8

• HR recording from check custody
• HR recording from time and attendance approval
• time and attendance approval from payroll recording
• time and attendance approval from check custody

Question 9

Output Controls (audit test)

Answer 9

• AP change report - reconcile invoices to AP and cash disbursements
• transaction log, transaction listing
• error listing
• AT - compare audit trail text files to output reports

Question 10

Expenditure Cycle Concerns

Answer 10

• recording purchases that didn’t occur
• missing a purchase that did occur
• paying the incorrect amount for an invoice
• paying a fictitious invoice
• paying the same invoice twice
• theft of inventory

Question 11

Substantive Tests - Completeness Assertion

Answer 11

• review disbursement vouchers for unusual trends and exceptions (scan data for unusual transactions or balances)
• search for unrecorded liabilities (compare disbursement voucher and receiving reports to look for unmatched records, and match the unmatched records with liabilities)
• search for unauthorized disbursement vouchers (compare disbursement voucher and receiving reports to look for vouchers that to not match receiving records
• search for duplicate payments to vendors (duplicate invoice numbers, dollar amounts, PO numbers)