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Financial Reporting > Chapter 8 - Acquisition and Expenditure Cycle > Flashcards

Chapter 8 - Acquisition and Expenditure Cycle Flashcards

1
Q

basic activities of the cycle

A
  1. purchase order
  2. receive
  3. record
  4. pay
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2
Q

the expenditure cycle begins when…

A

an individual or department needs materials, equipment, or services

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3
Q

department requisition purchase prepares…

A

purchase requisition

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4
Q

who receives the purchase requisition?

A

the purchasing department

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5
Q

if the purchase is high in price, what might happen?

A

bidding process

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6
Q

an approved vendor usually requires..

A

several departments to approve

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7
Q

when the purchasing identifies a vendor, they create a…

A

purchase order

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8
Q

the purchase order is sent to…

A

the selected vendor

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9
Q

the purchase order represents…

A

the official authorization of a purchase

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10
Q

what determines who approves the purchasing order?

A

how much $$

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11
Q

the purchasing department has a ___ fraud risk

A

high

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12
Q

when goods arrive at the company, the supplier will have a…

A

bill of landing

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13
Q

the bill of landing should be matched to what at delivery?

A

purchase order

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14
Q

after the devilry is verified as the company’s purchase, the receiving department prepares a…

A

receiving report

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15
Q

when recording, the AP department creates a…

A

voucher package

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16
Q

after the voucher packet is completed, accountants can..

A

enter the AP with debts to proper inventory, fixed asset, or expense accounts with corresponding credit to AP

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17
Q

accounts payable relevant assertions

A

completeness
cutoff
existence
presentation
valuation

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18
Q

expenses relevant assertions

A

completness
cut off
accuracy
classification

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19
Q

what is the potential problem for accounts payable relevant assertions?

A

unrecorded liability

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20
Q

what is the potential problem for expenses relevant assertions?

A

capitalizing expenses

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21
Q

types of control procedures

A

information processing controls
separation of duties
physical controls
performance reviews

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22
Q

for SOD, authorization is done by the…

A

purchasing department

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23
Q

for SOD, custody is held by the…

A

receiving department, but ultimately the requesting department

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24
Q

transaction are recorded by ________ and ______

A

general counting (control account) and AP department (subsidiary account)

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25
Q

for SOD, reconcile liabilities to…

A

customer statements and general ledger account

26
Q

bid are received by who?

A

someone independent of purchasing department

27
Q

(direction of tests) Did all recorded purchases actually occur?

A

vouch from purchase journal voucher to vendor invoice

28
Q

(direction of tests) Did all invoiced purchases actually occur?

A

vouch sample of vendor invoices to receiving reports

29
Q

were all vendor invoices recorded?

A

trace from vendor invoices to purchase journal

30
Q

were all recipes invoiced by the vendor?

A

trace from receiving report to vendor invoice

31
Q

for substantive procedures in the acquisition and expenditure cycle, we are looking for…

A

unrecorded liabilities (completeness)

32
Q

to verify cut-offs for purchases, we examine…

A

receiving reports and vendor sales invoices occurring around YE

33
Q

what are the other accounts in the cycle?

A

prepaid expenses
accused liabilites
expenses
inventory
PPE

34
Q

what are prepaid expenses easy to audit?

A

similar from year to year

35
Q

accrued liabilities are hard to audit because..

A

they aren’t typically invoiced or evidenced by the receipt of goods

36
Q

examples for accrued liabilities are…

A

interest, property taxes, wages, and income tax payable

37
Q

5 steps in auditing accrued liabilities and prepaid expenses

A
  1. agree balances to prior year work paper
  2. verify payments
  3. examine underlying agreements
  4. recalculate amounts
  5. search for unrecorded accruals
  6. analytical procedures
38
Q

when recalculating amount, make sure there is agreement between…

A

expense account to trial balances

39
Q

when searching for unrecorded accruals, review..

A

cash disbursements in YE and expected accruals at other times in the yr

40
Q

income tax payable usually requires a…

A

tax specialist

41
Q

when looking at income tax payable, we examine..

A

the correspondence with government agencies

42
Q

PPE has ____ number of transactions and _____ $ amounts

A

small, high

43
Q

what takes an added importance with PPE?

A

authorization of

44
Q

with PPE, there is less concern for…

A

access to assets

45
Q

with PPE, there is more concern for…

A

unrecorded disposals

46
Q

with PPE, agree balances to…

A

prior year documentation

47
Q

when purchasing PPE, what do we vouch?

A

to board minutes, to invoice or cost records

48
Q

when purchasing PPE, we inspect…

A

title

49
Q

for expenditures subsequent to acquisition, we vouch to..

A

invoice and work descriptions

50
Q

for expenditures subsequent to acquisition, we consider…

A

Property of classification (expense or capitalize)

51
Q

steps for disposal of PPE

A
  1. vouch from PPE board minutes to cash receipts journal and validated deposit slip
  2. record gain or loss
  3. trace from board minutes to PPE for disposals
52
Q

for disposal of PPE, we trace..

A

from board minutes to PPE

53
Q

from disposal of PPE we vouch…

A

from board minutes to cash receipts journal and validated slip

54
Q

to look for unrecorded disposals, agree balances to…

A

prior year work papers

55
Q

to look for unrecorded disposals, examine…

A

insurance policies, property tax, etc.

56
Q

to look for unrecorded disposals, what do you do with fixed assets?

A

physically inspect or confirm

57
Q

companies have an incentive to _____ assets

A

overstate

58
Q

for lease agreements, verify…

A

proper treatment (capitalized and operating)

59
Q

for lease agreements, ensure…

A

disclosure in footnotes is appropriate

60
Q

4 auditing cost and expense accounts

A
  1. analytical procedures
  2. agree to related balance sheet account
  3. substantive tests of transactions
  4. vouch detail

Financial Reporting (12 decks)

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