Chapter 8 - Acquisition and Expenditure Cycle Flashcards
basic activities of the cycle
- purchase order
- receive
- record
- pay
the expenditure cycle begins when…
an individual or department needs materials, equipment, or services
department requisition purchase prepares…
purchase requisition
who receives the purchase requisition?
the purchasing department
if the purchase is high in price, what might happen?
bidding process
an approved vendor usually requires..
several departments to approve
when the purchasing identifies a vendor, they create a…
purchase order
the purchase order is sent to…
the selected vendor
the purchase order represents…
the official authorization of a purchase
what determines who approves the purchasing order?
how much $$
the purchasing department has a ___ fraud risk
high
when goods arrive at the company, the supplier will have a…
bill of landing
the bill of landing should be matched to what at delivery?
purchase order
after the devilry is verified as the company’s purchase, the receiving department prepares a…
receiving report
when recording, the AP department creates a…
voucher package
after the voucher packet is completed, accountants can..
enter the AP with debts to proper inventory, fixed asset, or expense accounts with corresponding credit to AP
accounts payable relevant assertions
completeness
cutoff
existence
presentation
valuation
expenses relevant assertions
completness
cut off
accuracy
classification
what is the potential problem for accounts payable relevant assertions?
unrecorded liability
what is the potential problem for expenses relevant assertions?
capitalizing expenses
types of control procedures
information processing controls
separation of duties
physical controls
performance reviews
for SOD, authorization is done by the…
purchasing department
for SOD, custody is held by the…
receiving department, but ultimately the requesting department
transaction are recorded by ________ and ______
general counting (control account) and AP department (subsidiary account)
for SOD, reconcile liabilities to…
customer statements and general ledger account
bid are received by who?
someone independent of purchasing department
(direction of tests) Did all recorded purchases actually occur?
vouch from purchase journal voucher to vendor invoice
(direction of tests) Did all invoiced purchases actually occur?
vouch sample of vendor invoices to receiving reports
were all vendor invoices recorded?
trace from vendor invoices to purchase journal
were all recipes invoiced by the vendor?
trace from receiving report to vendor invoice
for substantive procedures in the acquisition and expenditure cycle, we are looking for…
unrecorded liabilities (completeness)
to verify cut-offs for purchases, we examine…
receiving reports and vendor sales invoices occurring around YE
what are the other accounts in the cycle?
prepaid expenses
accused liabilites
expenses
inventory
PPE
what are prepaid expenses easy to audit?
similar from year to year
accrued liabilities are hard to audit because..
they aren’t typically invoiced or evidenced by the receipt of goods
examples for accrued liabilities are…
interest, property taxes, wages, and income tax payable
5 steps in auditing accrued liabilities and prepaid expenses
- agree balances to prior year work paper
- verify payments
- examine underlying agreements
- recalculate amounts
- search for unrecorded accruals
- analytical procedures
when recalculating amount, make sure there is agreement between…
expense account to trial balances
when searching for unrecorded accruals, review..
cash disbursements in YE and expected accruals at other times in the yr
income tax payable usually requires a…
tax specialist
when looking at income tax payable, we examine..
the correspondence with government agencies
PPE has ____ number of transactions and _____ $ amounts
small, high
what takes an added importance with PPE?
authorization of
with PPE, there is less concern for…
access to assets
with PPE, there is more concern for…
unrecorded disposals
with PPE, agree balances to…
prior year documentation
when purchasing PPE, what do we vouch?
to board minutes, to invoice or cost records
when purchasing PPE, we inspect…
title
for expenditures subsequent to acquisition, we vouch to..
invoice and work descriptions
for expenditures subsequent to acquisition, we consider…
Property of classification (expense or capitalize)
steps for disposal of PPE
- vouch from PPE board minutes to cash receipts journal and validated deposit slip
- record gain or loss
- trace from board minutes to PPE for disposals
for disposal of PPE, we trace..
from board minutes to PPE
from disposal of PPE we vouch…
from board minutes to cash receipts journal and validated slip
to look for unrecorded disposals, agree balances to…
prior year work papers
to look for unrecorded disposals, examine…
insurance policies, property tax, etc.
to look for unrecorded disposals, what do you do with fixed assets?
physically inspect or confirm
companies have an incentive to _____ assets
overstate
for lease agreements, verify…
proper treatment (capitalized and operating)
for lease agreements, ensure…
disclosure in footnotes is appropriate
4 auditing cost and expense accounts
- analytical procedures
- agree to related balance sheet account
- substantive tests of transactions
- vouch detail
