Course : Information System Audit

Effective Period : September 2017

Auditing the
Expenditure Cycle
TOPIC 12
 Acknoledgement

These slides have been adapted from:

IT Auditing, Hall, 4e
 Learning Objectives
After studying this chapter, you should:
• Understand the primary tasks associated with the expenditure
cycle under different levels of technology
• Understand audit objectives related to the expenditure cycle
• Be familiar with expenditure cycle control issues related to
alternative technologies
• Recognize the relationship between expenditure cycle audit
objectives, controls, and tests of control
• Understand the nature of substantive tests in achieving
expenditure cycle audit objectives
• Be Familiar with common features and functions of ACL that are
used to perform substantive tests
 PURCHASES AND CASH DISBURSEMENT
PROCEDURES USING . BATCH
PROCESSING TECHNOLOGY
)
• Data Processing Department:
• Step 1
– Processing Department
• 5 part purchase order
• 3 alternatives for authorizing and ordering
inventories
• DPD: Step 2
– Receiving Department
 PURCHASES AND CASH DISBURSEMENT
PROCEDURES USING . BATCH
PROCESSING TECHNOLOGY
)
• DPD: Step 3
– Accounts Payable
• DPD: Step 4
– Cash Disbursement
• Data Processing Department
• Cash Disbursements Department
• Accounts Payable
 REENGINEERING THE PURCHASES/CASH
DISBURSEMENT.
• Data Processing
• Receiving Department
• Accounts Payable
 REENGINEERING THE PURCHASES/CASH
DISBURSEMENT.
• The Automated System
– Improved Inventory Control
– Better Cash Management
– Less Time Lag
– Better Purchasing Time Management
– Reduction of Paper Documents
• The Reengineered System
– Segregation of Duties
– Accounting Records and
 OVERVIEW OF PAYROLL
PROCEDURES
• General expenditure procedures that apply to all
vendors will not apply to employees
• Writing checks to employees requires special controls
• General expenditure procedures are designed to
accommodate a relatively smooth flow of transactions
 OVERVIEW OF PAYROLL
PROCEDURES
• Reengineering the Payroll System
• Human Resource Management (HRM) System
• Key Features:
– Personnel
– Cost Accounting
– Timekeeping
– Data Processing
 EXPENDITURE CYCLE AUDIT
OBJECTIVES, CONTROLS, AND . .
TESTS OF CONTROLS
• Input Controls
– Data Validation Controls
– Testing Validation Controls
– Batch Controls
– Testing Batch Controls
– Purchases Authorization Controls
– Testing Purchases Authorization Controls
– Employee Authorization
– esting Employee
 EXPENDITURE CYCLE AUDIT
OBJECTIVES, CONTROLS, AND . .
TESTS OF CONTROLS
• Process Controls
– File Update Controls
• Sequence Check Control
• Liability Validation Control
• Valid Vendor File
• Testing File Update Controls
– Access Controls
– Testing Access Controls
– Physical Controls
• Purchases System Control
– Segregation of inventory control from the warehouse
 EXPENDITURE CYCLE AUDIT
OBJECTIVES, CONTROLS, AND . .
TESTS OF CONTROLS
• Segregation of the general ledger and AP from
Cash Disbursements
• Supervision of Receiving Department
• Reconciliation of Supporting Documents
– Payroll System Controls
• Verification of Time Cards
• Supervision
• Paymaster
• Payroll Imprest Account
 EXPENDITURE CYCLE AUDIT
OBJECTIVES, CONTROLS, AND . .
TESTS OF CONTROLS
• Output Controls
– Accounts Payable Change Report
– Transaction Logs
– Transaction Listing
– Log of Automatic Transactions
– Unique Transaction Identifiers
– Error Listing
– Testing Output Controls
 SUBSTANTIVE TESTS OF EXPENDITURE
CYCLE ACCOUNTS
• Inventory File
• Purchase Order File
• Purchase Order Line Item File
• Receiving Report File
• Disbursement Voucher File and Check Register File
• Testing the Accuracy and Completeness Assertions
• Review Disbursement Vouchers for Unusual Trends
• and Exceptions
– Stratify
– Classify
• Reviewing for Accurate Invoice Prices
– Join
• Testing the Completeness, Existence, and Right and
Obligations Assertions
– Searching for Unrecorded Liabilities
– Searching for Unauthorized Disbursement
Vouchers
– Review for Multiple Checks to Vendors
– Auditing Payroll and Related.