sol18 - 1Chapter 18 Audit of the Acquisition and Payment...

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1 Chapter 18 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable Review Questions 18-2 TRANSACTION- RELATED AUDIT OBJECTIVE POSSIBLE INTERNAL CONTROLS COMMON TESTS OF CONTROLS 1. Recorded cash disbursements are for goods and services actually received (existence). 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 reconciliations and observe their preparation. 4. 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. 18-19
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5. Cash disbursement transactions are recorded on the correct dates (timing). Procedures require recording of transactions as soon as possible after the check has been signed. Dates are internally verified. Examine procedures manual and observe whether unrecorded checks exist. Examine indication of internal verification. 6. 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. 18-4 Auditing standards require that the tests of controls and substantive tests of transactions cover the entire accounting period in order to determine that the system was operating in a consistent manner throughout the period. In selecting the number of items for testing, the auditor must determine the sample size, statistically or nonstatistically, such that it is likely to be representative of the actual conditions of the population of all transactions.
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