Chapter_18_Solutions_Manual - Chapter 18 Audit of the...

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Unformatted text preview: Chapter 18 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable Review Questions 18-1 a. Asset accounts: Office supplies Delivery equipment Machinery and equipment Land Cash in bank Prepaid expenses b. Liability accounts: Accounts payable Accrued property taxes Accrued insurance Other accrued liabilities c. Expense accounts: Purchases, purchase returns & allowances, purchases discounts (COGS accounts) Rent expense Legal expense Fines and penalties Advertising expense Repairs and maintenance Depreciation expense Utilities expense Property tax expense Administrative expenses Income tax expense 18-1 18-2 TRANSACTION-RELATED AUDIT OBJECTIVE POSSIBLE INTERNAL CONTROLS COMMON TESTS OF CONTROLS 1. Recorded cash disbursements are for goods and services actually received (occurrence). There is adequate segregation of duties between accounts payable and custody of signed checks. Supporting documentation is examined before signing of checks by an authorized person. Approval of payment on supporting documents at the time checks are signed. Discuss with personnel and observe activities. Discuss with personnel and observe activities. Examine indication of approval. 2. Existing cash disbursement transactions are recorded (completeness). Checks are prenumbered and accounted for. The bank reconciliation is prepared monthly by an employee independent of recording cash disbursements or custody of assets. Account for a sequence of checks. Examine bank reconciliations and observe their preparation. 3. Recorded cash disbursement transactions are accurate (accuracy). Calculations and amounts are internally verified. The bank reconciliation is prepared monthly by an independent person. Examine indication of internal verification. Examine bank recon- ciliations and observe their preparation. 4. Cash disbursement transactions are properly included in the accounts payable master file and are properly summarized (posting and summarization). Accounts payable master file contents are internally verified. Accounts payable master file or trial balance totals are compared with general ledger balances. Examine indication of internal verification. Examine initials on general ledger accounts indicating comparison. 5. Cash disbursement transactions are properly classified (classification). An adequate chart of accounts is used. Account classifications are internally verified. Examine procedures manual and chart of accounts. Examine indication of internal verification....
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Chapter_18_Solutions_Manual - Chapter 18 Audit of the...

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