Acquisition and Expenditure Cycle

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Presentation transcript:

Acquisition and Expenditure Cycle Chapters 8 Acquisition and Expenditure Cycle Accounting 408 Chapters 8

1. Internal Control Acquisition of Goods or Services separate functions: authorization, purchasing, receiving, custody, record keeping documents and records: purchase requisition, purchase order, receiving report Accounting 408 Chapters 8

1. Internal Control (continued) Controls over purchase of fixed assets Acquired through acquisition cycle Authorizations Budget Subsidiary ledger Materiality Capital v. revenue expenditures Periodic physical inventory Retirement Accounting 408 Chapter 13

Internal Control (continued) Accounts Payable steps: match all documents, check accuracy - compare numbers, code account distribution, approve for payment, record payable documents and records: vendor’s invoice, voucher, voucher register, open purchase order file, unmatched receiving reports, unmatched vendor’s invoices, accounts payable trial balance, purchases journal Accounting 408 Chapters 8

Internal Control (continued) Cash Disbursements steps: pay from approved voucher, control check signing, mail payment, cancel voucher, record cash payment documents and records: paid voucher file, cash disbursements journal lockbox systems positive pay systems Accounting 408 Chapters 8

2. Substantive Tests Accounts Payable Confirmations Examine subsequent payments Analytical procedures Vouch transactions Cutoff tests - purchases & cash disbursements Reconcile recorded A/P to monthly statements Examine unmatched receiving reports, purchase orders, and invoices Recompute year-end accruals for accrued lia. Accounting 408 Chapters 8

2. Substantive Tests (continued) Accounts Payable Existence and Occurrence vouching, confirmation, cut-off tests, reconciling monthly statements Rights and Obligations vouching, confirmation Completeness examining subsequent payments, tracing, cutoff tests, confirmation, reconciling monthly statements, analytical procedures Accounting 408 Chapters 8

2. Substantive Tests (continued) Accounts Payable Valuation vouch recorded payables, confirmation Presentation and Disclosure compare statement presentation to GAAP related party transactions, determine if any significant debit balances Accounting 408 Chapters 8

2. Substantive Tests (continued) Fixed Assets Approach - tests of transactions Vouch additions Vouch disposals Examine repairs and maintenance expense Inspect assets Search for unrecorded retirements Examine title and/or tax statements Test for impairments Review depreciation Examine lease contracts Analytical procedures Accounting 408 Chapter 13

2. Substantive Tests (continued) Fixed Assets Existence and Occurrence observation, vouching additions, search for unrecorded retirements Rights and Obligations vouching, examine title and/or tax statements Completeness analytical procedures, examine title and/or tax statements, cut-off tests, review insurance coverage Accounting 408 Chapter 13

2. Substantive Tests (continued) Fixed Assets Valuation vouching transactions, review repairs and maintenance expense, test for impairments, review depreciation Presentation and Disclosure compare statement presentation to GAAP related party transactions, pledged assets for loan, review gains/losses for proper presentation, review cost, BV, depreciation, useful lives for proper presentation Accounting 408 Chapter 13

3. Frauds Fraudulent disbursement schemes Common and expensive frauds Examples fraudulent payments to shell company duplicate payments fraudulent payroll payments personal purchases expense reimbursements check tampering Accounting 408 Chapters 8

3. Frauds Red flags rounded amount invoices amounts just below approval amounts abnormal volume sequential invoice numbers photocopies of invoices P.O. Boxes (with no other addresses) no listed phone number same vendor and employee addresses multiple vendors at same location examine services accounts Accounting 408 Chapters 8

Review Questions for Discussion Chapter 8 8.1 8.4 8.6 8.7 8.9 8.15 8.16 8.17 8.18 8.20 8.21 ACCT-4080 Chapter 1

Payroll Cycle Functions Biggest fraud risks HR department Hiring and firing Supervision Cost accounting Payroll accounting Check signing Payroll distribution Biggest fraud risks ghost employees fictitious hours Accounting 408 Chapters 8