Professional Documents
Culture Documents
5 - Audit of Purchasing Disbursement Cycle
5 - Audit of Purchasing Disbursement Cycle
EXPENDITURE CYCLE
1.
2.
3.
4.
PURCHASING / ACQUISITION
PAYMENT / DISBURSEMENT
PRODUCTION &
WAREHOUSING
PAYROLL
TOPIC OUTLINE
PURCHASING CYCLE
DISBURSEMENT
money paid
out or spent
-means payment of/for
purchases
expenses
PURCHASING the act or
process of seeking and obtaining
something (Acquisition)
PURCHASING DEPARTMENT
Purchasing department refers to a people or group of
people in an organization attempting to acquire goods
or services to accomplish the goals of the enterprise.
Though there are several organizations that attempt
to set standards in the purchasing process,
processes can vary greatly between organizations.
Procurement - includes Expediting, Supplier Quality,
and Traffic and Logistics (T&L) in addition to
Purchasing.
OVERVIEW OF THE
PURCHASING CYCLE
1. An employee recognizes a
need for a purchase; completes a requisition and sends
it to purchasing.
Ace Company
PURCHASE
REQUISITION
The production
dept. needs 200
kgs. of dry #4
solvent.
authorized
employee
PURCHASING
DEPARTMENT
PURCHASING
DEPARTMENT
Ace Company
PURCHASE
ORDER
To: Big Chemical Co.
Please ship 200
kgs. of dry #4 solvent
by 6/2/12
Price P38.40/kg.
purchasing agent
BIG
Chemical Co.
BIG
Chemical Co.
RECEIVING
DEPARTMENT
BIG
Chemical Co.
Received 200
kgs. of dry #4
solvent on 6/1/12.
Condition: OK
receiving employee
WAREHOUSE
perpetual inventory
description
Php
6/1/12-dry #4
solvent-200 kgs.7680
perpetual inventory
description
Php
6/1/12-dry #4
solvent-200 kgs.7680
6/8/12-trans.200
kgs.to prod. -7680
PRODUCTION
DEPARTMENT
cost acctg. system
description
_ Php _
June 8, 2012
Raw matl added
- dry #4 solvent
(200 kgs.)
7680
perpetual inventory
description
Php
6/9/12-fin.goods
50 litres x7g 9680
PRODUCTION
DEPARTMENT
Ace Co.
perpetual inventory
description
Php
6/9/12-fin.goods
50 litres-x7g 9680
8/5/12- sold 30
litres-x7g
-5808
TYPES OF TRANSACTIONS
FINANCIAL STATEMENT
ACCOUNTS AFFECTED
Purchase transaction:
Accounts payable
Inventories
Purchases or cost of goods sold
Various asset and expense
accounts requiring cash payment
Purchase returns & allowances
Purchase discounts
Accounts payable
Cash
Accounts payable - trade
Cash discounts
Purchase requisition.
Purchase order.
Receiving report.
Vendor invoice.
Voucher.
FROM: inventory
stockroom or operating
department
PURPOSE: indicates to
the purchasing dept. that
goods should be ordered
CONTENT: item
description, qty. needed,
the requester
AUDIT SIGNIFICANCE
AUDIT SIGNIFICANCE
PO contains the
signature of the
employee who
authorized a purchase
from a vendor
AUDIT SIGNIFICANCE
FROM: Supplier
PURPOSE: indicates the
details of the items
received
CONTENT: item
description, qty. received,
price, freight, cash
discount, terms & date of
billing
AUDIT SIGNIFICANCE
This document is
created externally &
provides evidence
about a purchase of
goods or services
AUDIT SIGNIFICANCE
FROM: Supplier
This document is
PURPOSE: indicates a
created externally &
reduction in the amount
owed to a vendor because
provides evidence of
of returned goods or an
reduction of accounts
allowance
payable
CONTENT: item
description, amount &
quantity of goods returned
AUDIT SIGNIFICANCE
FROM: Accounting
A voucher provides
dept./Payables Clerk to
Treasury Dept.
documentation for the
PURPOSE: establish a formal
recording of a
means of recording &
transaction.
controlling acquisitions
CONTENT: brief details of
payment to be paid; vendors
invoice, RR & PO are attached
to it
AUDIT SIGNIFICANCE
FROM: Treasurer
PURPOSE: a means of
payment that authorized a
bank to transfer funds to the
payee
CONTENT: payee, date to
be paid, amount in words &
figures, signatures
AUDIT SIGNIFICANCE
FROM: Vendor
This can be used to
PURPOSE: indicates the
determine that all
beg. Balance, acquisitions,
returns & allowances,
transactions recorded
payments to vendor &
on the statements have
ending balance
MAJOR FUNCTIONS
Requisitioning
Purchasing
Receiving
Invoice processing
Disbursements
Accounts payable
General ledger
STATEGIC SYSTEMS
APPROACH INHERENT RISK
ASSESSMENT
CONTROL RISK
ASSESSMENT
Understanding and documenting
the purchasing internal control system based
on the planned level of control risk
TEST OF CONTROLS
EXISTENCE OR
OCCURRENCE
COMPLETENESS
RIGHTS &
OBLIGATIONS
TEST OF CONTROLS
VALUATION OR
ALLOCATION
TEST OF CONTROLS:
Existence or Occurrence
ACQUISITION CONTROLS
Approval by authorized
personnel, which is
evidenced by signature on
the PO
Prepared voucher
supported by properly
executed PRF, PO, RR &
Vendors Invoice
The check signer should
examine the supporting
documentation & cancel the
documents (mark paid or
write the date & no. of
check in the doc.)
TEST OF CONTROLS
Examine the
approval
signature
Observes the
procedure &
examine file of
documents
Examine
cancellation of
documents. if not
done, scan the
voucher register
TEST OF CONTROLS:
Completeness
ACQUISITION CONTROLS
Prenumbered RR should
be used & accounted for
Vouchers are
prenumbered and
accounted as they are
entered in the voucher
register
TEST OF CONTROLS
Observe the
procedure &
account for
numerical
sequence of the
RR
Observe the
procedure &
account for
numerical
sequence of the
Voucher
TEST OF CONTROLS:
Rights & Obligations
ACQUISITION CONTROLS
RR should be prepared by
persons having access
only to a blind copy of PO
details
TEST OF CONTROLS
TEST OF CONTROLS:
Valuation or Allocation
ACQUISITION CONTROLS
TEST OF CONTROLS
Examine the
voucher for
signature
indicating
performance
TEST OF CONTROLS:
Presentation & Disclosure
ACQUISITION CONTROLS
TEST OF CONTROLS
SUBSTANTIVE TESTS OF
TRANSACTIONS: ACQUISITIONS
ASSERTIONS &
AUDIT OBJECTIVES
EXISTENCE OR
OCCURRENCE
To determine that
recorded purchases are
for items that were
acquired
AUDIT PROCEDURES
Examine underlying
documents for
authenticity &
reasonableness.
Scan voucher register for
large or unusual items.
Inspect items
Trace inventory
purchased to perpetual
records
Scan voucher register for
duplicate payments
SUBSTANTIVE TESTS OF
TRANSACTIONS: ACQUISITIONS
ASSERTIONS &
AUDIT OBJECTIVES
COMPLETENESS
To determine that
purchases that occurred
are recorded
AUDIT PROCEDURES
Trace a sequence of RR
to entries in the voucher
register.
Cut-off tests
SUBSTANTIVE TESTS OF
TRANSACTIONS: ACQUISITIONS
ASSERTIONS &
AUDIT OBJECTIVES
RIGHTS &
OBLIGATIONS
To determine that
purchases are the entitys
acquisitions & liabilities
AUDIT PROCEDURES
Trace from invoices to
perpetual inventory records.
Examine vendors invoices &
supporting documents to
ascertain that:
SUBSTANTIVE TESTS OF
TRANSACTIONS: ACQUISITIONS
ASSERTIONS &
AUDIT OBJECTIVES
VALUATION OR
ALLOCATION
To determine that
purchases are recorded
for the proper amounts
AUDIT PROCEDURES
Recompute invoices &
compare invoice price to PO.
SUBSTANTIVE TESTS OF
TRANSACTIONS: ACQUISITIONS
ASSERTIONS &
AUDIT OBJECTIVES
PRESENTATION &
DISCLOSURE
To determine that
purchases are recorded
to result in presentation &
disclosure in accordance
with PAS/PFRS
AUDIT PROCEDURES
Check accuracy of accounts
on invoices by reference to
chart of accounts
11-45
AUDITING ACCOUNTS
PAYABLE AND ACCRUED
EXPENSES
SUBSTANTIVE TESTS OF
TRANSACTIONS
ANALYTICAL PROCEDURES
ACCOUNTS PAYABLE
CONFIRMATIONS
ACCOUNTS PAYABLE
CONFIRMATIONS (cont.)
PRODUCTION
CYCLE
PRODUCTION CYCLE
Revenue
INVESTING
PRODUCTION
EXPENDITURE
FINANCING
DOCUMENTS
PRODUCTION ORDER
FROM: INVENTORY
(FINISHED GOODS) TO
PRODUCTION
PERSONNEL
PURPOSE: instruct to
produce a quantity of a
particular product
AUDIT SIGNIFICANCE
Records approval for
production personnel to
produce goods
DOCUMENTS
BILL OF MATERIAL
PURPOSE: a list of raw
material components
required to produce a
product
AUDIT SIGNIFICANCE
Indicates components
to be used in producing
a product
DOCUMENTS
MATERIALS REQUISITION
PURPOSE: use to
request and approve the
issuance of materials
from inventory
AUDIT SIGNIFICANCE
Records approval to
issue materials in the
production
DOCUMENTS
MATERIALS REQUISITION
SUMMARY
PURPOSE: summarizes
the materials
requisitioned by job or by
process, for a period such
as a day, a week, or a
month
AUDIT SIGNIFICANCE
DOCUMENTS
COST ACCUMULATION
REPORT
AUDIT SIGNIFICANCE
DOCUMENTS
AUDIT SIGNIFICANCE
LABOR TICKET
PURPOSE: records of a
time worked on a job
DOCUMENTS
LABOR TICKET
SUMMARY
PURPOSE: summarizes
the daily labor tickets by
job or by process
AUDIT SIGNIFICANCE
DOCUMENTS
COMPLETED
PRODUCTION REPORT
PURPOSE: summarizes
costs for cost control
purposes and for
determining the amount
of costs to assign to
goods remaining in the
production process
AUDIT SIGNIFICANCE
INVENTORY WAREHOUSING
Activities
Misstatements / Irregularities
1.
2.
3.
4.
5.
6.
AUDIT PROCEDURES
Testing Quantities
Periodic
Perpetual
Testing Prices
FIFO
Weighted Average Method