Specific Transaction Cycles

Question 1

What is the meaning of Transaction Cycle?

Answer 1

a group of essentially homogeneous transactions, that is, transactions of a particular type

Question 2

What are Transaction Cycles?

Answer 2

1 Revenue/receipts
2 Expenditures/disbursements
3 Payroll
4 Inventory
5 Fixed assets
6 Investing/financing

Question 3

What are the “control activities (SCARE) that are useful to auditors in looking at the relative strength or weakness of controls in a particular transaction cycle?

Answer 3

Segregation of duties, 
Controls (as in physical controls), 
Authorization, 
Reviews (as in performance reviews), and
EDP/IT (information processing).

Question 4

What is Segregation of duties?

Answer 4

Referred to as separation of duties and involves separating incompatible functions to the extent possible. Employee should not have ability to authorize, have access to and perform accounting activities

Question 5

What is Controls (Physical Controls)?

Answer 5

Having access to assets should be limited to authorized personnel

Question 6

What is Authorization

Answer 6

Transactions should be executed in accordance with management’s authorization

Question 7

What is Reviews (Performance Reviews)?

Answer 7

Actual performance should be compared to appropriate budgets and forecasts

Question 8

What is EDP/IT (Information Processing)?

Answer 8

General controls, which are policies and procedures that have widespread effect on many specific applications