Specific Transaction Cycles Flashcards
Define Transaction Cycle?
A group of fairly homogeneous transactions.
A type of transaction
What are some examples of transaction cycles?
- Revenue/ Receipts
- Expenditures/disbursements
- Payroll
Other categories:
- Production/manufacturing inventory
- Fixed assets (PP&E)
- Financing/investing
Why do auditors focus on these transaction cycles?
Its the highest level at which we can treat control risk at a constant.
It is efficient
Internal control consists of 5 interrelated components, what are those 5 components?
1) Control environment- tone at the top
2) Risk assessment- policies and procedures to identify risks to the entity
3) Information and communication systems- gathering and processing, distributing information on a timely basis
4) Control actives- Policies and procedures that help ensure management directives are being carried out
5) Monitoring- Obtain an understanding of all of the above
What are the components of control activities: SCARE
SCARE:
Separation of Duties Controls (Physical Controls) Authorization Review (Performance Review) EDP/IT (Information Processing)
What are examples of controls (physical controls)
Computer passwords should be used to limit unauthorized access to accounting systems
Any inventory involved should be secured with limited authorized personnel
What are examples of authorization?
Management should review the terms of sales transactions and indicate that approval on the sales invoice (billing)
Management should usually establish general approvals of transactions within specified limits and specially approved transactions outside of those prescribed limits
Management should approve the entities adjusting entries
What are examples of reviews (performance review)
The entity’s recorded sales should be compared to appropriate budgets and forecasts
Related accounting documents should be compared on a timely basis- sales invoices and shipping documents should be compared to verify that sales transactions were recorded in the proper period
What are examples of EDP/IT (Information Processing)
The auditor should agree that financial statement amount(s) to the applicable general ledger accounts
1) Important accounting documents should be renumbered and the numerical sequence should be accounted for
2) A trial balance for A/R should be agree to the general ledger control account