Audit 2

AUDITING THE EXPENDITURE CYCLE

STUDENT CONCEPTUAL FRAMEWORK
Case study Honesty

Critical thinking Emphaty

Creative thinking
Dicipline
collaboration
Confident
Communication
skill Ethos

Islam,
Iman, Ihsan
Chapter Overview
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 SLIDE 5

The Expenditure Cycle

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Develop Audit Objectives
Understanding
the Entity and
Environment
 Inherent Risk, Including the Risk of Fraud
SLIDE 8

Management Misstatement of
Expenditures
● Understate expenses
● Understate payables Other Misstatement Factors
● High volume of transactions
● Unauthorized purchases
● Misappropriation
● Duplication of payments

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Analytical Procedures
 Consideration of Internal Control
Components

Control Risk Information and

Communication Monitoring
Environment Assessment

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 Purchase Transactions –
Documents and Records
Purchase Purchase Approved
vendor
requisition order master file

Open Receiving Receiving Vendor

purchase report Invoice
order file file

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 Exception Voucher
Voucher reports summary

Purchase Accounts
Voucher transactions payable Suspense
register master file files
file

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Purchase Transactions – Functions and Control Activities

1 2 3

Initiating Purchases Receipt of Goods and

Services Recording Liabilities
● Placing vendors on an ● Receiving the goods
authorized vendor list ● Storing goods received for
● Requisitioning goods and inventory
services
● Preparing purchase ● Returning goods to vendor
orders

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Systems Flowchart – Purchase
Transaction
 1 Check
Cash
Disbursement 2 Check Summary

Transactions
3
– Common Cash Disbursements Transaction File

Documents 4 Cash Disbursements Journal or Check Register

and Records!
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Cash Disbursement Transactions- Function and Control Activities

Computerized System
● Paying the Liability
● Recording the Disbursement

Manual System
● Paying the Liability
● Recording the Disbursement

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Systems Flowchart – Cash Disbursement Transactions

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Purchase Adjustment Transactions– Common
Documents and Records

1 Shipping Report

Purchase Return Authorization 2

3 Debit Memo

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Purchase Adjustment Function and Controls

1 2 3

Purchase Returns
and Allowances Other Controls Tests of Controls

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 Substantive Tests of Accounts Payable Balances

Determining Detection Risk for Tests of Details

● Existence and Occurrence

● Completeness

● Rights and Obligations

● Valuation and Allocation

● Presentation and Disclosure

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 Designing Substantive Tests
3. Tests of Details of
1. Initial Procedures 2. Analytical Procedures Transactions
● Vouch Recorded Payables
to Supporting
Documentation

● Perform Cutoff Tests

● Purchases cutoff tests
● Cash disbursement
cutoff tests
● Purchase return cutoff
tests
4Tests of Details of 4.Tests of Details of
● Perform Search for
Balances Disclosures Unrecorded Payables
● Subsequent payments
● Accounts Payable
Confirmations
● Reconcile
Unconfirmed
Payables to Vendor
Statements The Power of PowerPoint - thepopp.com
KEEP MOVING
FORWARD!
Don’t be afraid. We are beside you.
Thank You! 
Any Questions?

Jun Akizaki – The Power of PowerPoint

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