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Unformatted text preview: 19-1 Chapter 19 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts PayableUReview Questions19-1a. Asset accounts: UOffice supplies UDelivery equipment UMachinery and equipment ULand UCash in bank UPrepaid expenses b. Liability accounts: UAccounts payable UAccrued property taxes UAccrued insurance UOther accrued liabilities c. Expense accounts: UPurchases, purchase returns & allowances, purchases discounts (COGS accounts) URent expense ULegal expense UFines and penalties UAdvertising expense URepairs and maintenance UDepreciation expense UUtilities expense UProperty tax expense UAdministrative expenses UIncome tax expense 19-2 19-2 TRANSACTION-RELATED AUDIT OBJECTIVE POSSIBLE INTERNAL CONTROLS COMMON TESTS OF CONTROLS 1. Recorded cash disbursements are for goods and services actually received (existence). UThere is adequate segregation of duties between accounts payable and custody of signed checks. USupporting documentation is examined before signing of checks by an authorized person. UApproval of payment on supporting documents at the time checks are signed. UDiscuss with personnel and observe activities. UDiscuss with personnel and observe activities. UExamine indication of approval. 2. Existing cash disbursement transactions are recorded (completeness). UChecks are prenumbered and accounted for. UThe bank reconciliation is prepared monthly by an employee independent of recording cash disbursements or custody of assets. UAccount for a sequence of checks. UExamine bank reconciliations and observe their preparation. 3. Recorded cash disbursement transactions are accurate (accuracy). UCalculations and amounts are internally verified. UThe bank reconciliation is prepared monthly by an independent person. UExamine indication of internal verification. UExamine bank reconciliations and observe their preparation. 4. Cash disbursement transactions are properly classified (classification). UAn adequate chart of accounts is used. UAccount classifications are internally verified. UExamine procedures manual and chart of accounts. UExamine indication of internal verification. 5. Cash disbursement transactions are recorded on the correct dates (timing). UProcedures require recording of transactions as soon as possible after the check has been signed. UDates are internally verified. UExamine procedures manual and observe whether unrecorded checks exist. UExamine indication of internal verification. 6. Cash disbursement transactions are properly included in the accounts payable master file and are properly summarized (posting and summarization). UAccounts payable master file contents are internally verified....
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This note was uploaded on 02/22/2010 for the course CCA 401 taught by Professor Mohammad during the Spring '10 term at Abraham Baldwin Agricultural College.
- Spring '10