Kế toán, kiểm toán - Chapter 8: Acquisition and expenditure cycle

Auditing & Assurance Services, 6eChapter 8 Acquisition and Expenditure Cycle“Show those numbers to the damn auditors and I'll throw you out the $%*@@ window.”----(Buddy Yates, director of WorldCom, Inc. general accounting, to an employee asking for an explanation of a large accounting discrepancy).8-*Learning ObjectivesIdentify significant inherent risks in the acquisition and expenditure cycle.Describe the acquisition and expenditure cycle, including typical source documents and controls.Give examples of tests of controls over purchases of inventory and services.Explain the importance of the completeness assertion for the audit of accounts payable liabilities, and list some procedures for a search for unrecorded liabilities.8-*Learning Objectives (cont.)Discuss audit procedures for other accounts affected by the acquisition and expenditure cycle.Specify some ways fraud can be found in the acquisition and expenditure cycle.Describe some common errors and frauds in the acquisition and expenditure cycle, and design some audit and investigation procedures for detecting them.Describe the payroll cycle, including typical source documents and controls8-*Inherent RisksUnrecorded liabilitiesNon-cancelable purchase agreementsCapitalizing expensesSee Exhibit 8.2 for assertion risks8-*Acquisition and Expenditure Cycle: Typical ActivitiesPurchase Goods and ServicesDepartment requesting purchase of item(s) prepares a PURCHASE REQUISITIONBidding may be required on high dollar purchasesPurchasing prepares a PURCHASE ORDER approved by the appropriate person (usually dependent on dollar amount of PO)May be done electronically by EDIReceiving the Goods or ServicesAfter vendor approval, goods are received by company and evidenced by preparing a RECEIVING REPORTRecording the Asset or Expense and Related LiabilityVendor bills company for goods using a VENDOR'S INVOICEPaying the invoice through the cash disbursement process8-*Control ProceduresInformation processing controls Compare PO number on BOL with company POCompare quantities against receiving report and purchase orderCompare prices against quoted price or catalog listingRecompute vendor's invoicesDetermine when to pay invoice Properly prepare voucher8-*Control Procedures (Con’t)Separation of dutiesAUTHORIZATION of the purchase is done by the purchasing department.CUSTODY of the inventory item(s) is held by the receiving department and, ultimately, the requesting department.Transactions are RECORDED by general accounting (control account) and accounts payable department (subsidiary accounts).RECONCILE liabilities to customer statements and general ledger account.Bids are received by someone independent of the purchasing decision.8-*Control Procedures (Con’t)Physical controlsPrepare a receiving report upon initial receipt of inventoryCount and verify inventory quantities upon delivery to the inventory warehouseRestrict access to inventories by keeping them in a secured locationPerformance reviewsCompare purchases data to data from previous years or expected purchases dataReview bids to ensure that documentation exists regarding the selection of the vendor8-*Audit Evidence in Management Reports and Data FilesOpen purchase ordersUnmatched receiving reportsUnmatched vendor invoicesAccounts (vouchers) payable trial balancePurchases journalFixed asset reports8-*The Completeness AssertionSearch for Unrecorded LiabilitiesInquire about procedures for identifying and recording liabilitiesScan open purchase order fileExamine UNMATCHED VENDOR STATEMENTS or INVOICESExamine UNMATCHED RECEIVING REPORTS occurring near year-endTRACE unpaid VOUCHERS in A/P ledger to receiving reportsConfirm A/P with NORMAL SUPPLIERS (even those with zero balances)Review CASH DISBURSEMENTS occurring after year-end8-*Purchase CutoffsVerify CUT-OFFs for purchases Examine Receiving Reports and Vendor Sales Invoices occurring around year-end to ensure inventory received is included in the appropriate period.8-*Accrued LiabilitiesMajor differences between ACCRUED Liabilities and ACCOUNTS PAYABLEExamples include INTEREST, PROPERTY TAXES, WAGES, and INCOME TAXES PAYABLEThese payables are not normally INVOICED or EVIDENCED by the RECEIPT OF GOODSThese differences may make it more difficult to detect UNRECORDED ACCRUALS8-*Auditing Accrued Liabilities and Prepaid ExpensesAgree balances to PRIOR YEAR WORKPAPERSVerify PAYMENTSExamine UNDERLYING AGREEMENTSRECALCULATE amountsAgree EXPENSE ACCOUNTS to trial balanceSearch for UNRECORDED ACCRUALSReview CASH DISBURSEMENTS at year-endLook for expected accruals at other stages of the audit (BONDS, NOTES, employees paid on 15th, etc.)ANALYTICAL PROCEDURES8-*Income Taxes PayableExtremely complex areaClient may operate in multiple tax jurisdictionsUsually requires tax specialistVouch paymentsExamine correspondence with government agenciesFollow standard for auditing estimates8-*AUDITING PROPERTY, PLANT, AND EQUIPMENTGENERAL APPROACHSmall number of transactionsRelatively high dollar transactionsAuthorization of Transactions (Board of Directors or approved capital budget) takes on added importance.Less concern for ACCESS to ASSETSMore concerned with UNRECORDED DISPOSALS8-*AUDITING PROPERTY, PLANT, AND EQUIPMENTAgree balances to prior year documentationPURCHASES OF PP&EVOUCH to INVOICE or COST RECORDSInspect TITLE VOUCH to BOARD MINUTES EXPENDITURES SUBSEQUENT TO ACQUISITIONVOUCH to INVOICE and WORK DESCRIPTIONS Consider propriety of classification (EXPENSE or CAPITALIZE) 8-*AUDITING PROPERTY, PLANT, AND EQUIPMENTDISPOSAL OF PP&EVOUCH from PP&E to BOD MINUTES Vouch to cash receipts journal and validated deposit slipRecalculate gain/lossTRACE from BOD MINUTES to PP&E for disposals (COMPLETENESS)Look for unrecorded disposalsAgree balances to PRIOR YEAR WORKPAPERSExamine insurance policies, property tax records, etc. PHYSICALLY INSPECT or CONFIRM fixed assetsBoth existing and newly-acquired itemsConfirm assets LEASED to others under capital leases8-*AUDITING PROPERTY, PLANT, AND EQUIPMENTDEPRECIATION EXPENSERecalculate using USEFUL LIFE, SALVAGE VALUE, COST, and METHODEvaluate REASONABLENESS of USEFUL LIFE, SALVAGE VALUE, etc.Is depreciation consistent with COMPANY POLICY (half year conventions)?LEASE AGREEMENTSVerify proper treatment (Capitalized or Operating)Ensure disclosure in footnotes is appropriate8-*Auditing Cost and Expense AccountsAnalytical procedures (e.g. sales commissions)Agree to related balance sheet account (e.g. depreciation)Substantive tests of transactions (e.g. purchases)Vouch detail (e.g. legal expense)8-*Fraud Red FlagsPhotocopies of invoicesInvoices in numerical order Round numbersSlightly below authorization thresholdsNo listed phone #P.O. Boxes (with no other addresses)Mail drop addresses (e.g. UPS stores)Vendor and Employee addresses the sameMultiple vendors at same location8-*Appendix 8CPayroll Cycle8-*Learning Objective Describe the payroll cycle, including typical source documents and controls.8-*PayrollOften processed by service bureausBalance sheet accounts usually small.Rely on tests of controls/substantive tests of transactions.8-*.Inherent Risks in the Payroll CycleGhost employeesOverpaying (padding) for time or productionIncorrect accounting (classification)Failure to pay third-parties (e.g. payroll taxes, insurance) 8-*Payroll Cycle: Typical ActivitiesPERSONNEL AUTHORIZATION FORMS authorize all payroll-related transactions Employees should record their hours worked using TIME SHEETSSupervisory personnel review time sheets and verify the distribution of hours worked on various jobs. Payroll Department processes payroll and prepares a PAYROLL REGISTER and PAYROLL CHECKSCash Disbursements/Treasurer should review the Payroll Register and compare it to the Payroll ChecksPayroll Checks should be signed by an authorized party and distributed directly to employees8-*Payroll Cycle: Control ActivitiesPhysical ControlsPayroll Checks and signature plates kept in a secure locationPayroll Checks distributed by a person not involved in processing or recording payrollPayroll Checks distributed to individuals with proper identificationUnclaimed Payroll Checks stored in a secure locationSegregation of DutiesThe Personnel Department and the Hiring/Employing Department AUTHORIZE payroll transactions and payroll-related changes. Payroll is RECORDED by the Payroll Department and General AccountingThe Cash Disbursements Department/Treasurer has CUSTODY of the Payroll ChecksPerformance ReviewsPayroll transaction data compared to prior-year data or budgeted/expected data.Review of Payroll Register for reasonablenessReconcile the Payroll bank account8-*Payroll Cycle: Management Reports and FilesPersonnel filesPayroll registerLabor cost analysisClearing accountsGovernment and tax reportsYear-to-date earnings recordsW-2 reports8-*