AUDITING THE

EXPENDITURE CYCLE
PART 2

PROCESS CONTROL
includes

computerized
procedures for updating files and
restricting access to data

FILE UPDATE CONTROLS

Sequence

Check Control
-A sequence control check should be
placed to compare the sequence of
each record in the file
Liability Validation Control
-Validation of the liability prior to
making payment
oPurchase Order
oReceiving Report
oSuppliers invoice

Valid

Vendor File
-consists of a list of vendors with
whom the organization normally
does business.

ACCESS CONTROLS
Access controls prevent and detect
unauthorized and illegal access to
the firms assets.
Traditional techniques:
Warehouse security
Moving assets
Paying employees

Risks specific to the expenditure

cycle:
Individual with access to the AP
subsidiary ledger
Access to employee attendance
cards
Access to both cash and accounts
payable
Access to physical inventory and
inventory records

PHYSICAL CONTROLS
Include manual activities and
human actions to initiate computer
procedures to safeguard the assets
of the organization.
Purchases System Controls
Payroll System Controls

PURCHASES SYSTEM CONTROLS

Segregation

of inventory control
from the warehouse
Segregation of the general ledger
and accounts payable from cash
disbursements
Supervision of receiving
department
Reconciliation of supporting
documents

PAYROLL SYSTEM CONTROLS

Verification

of time cards

Supervision
Paymaster
Payroll

imprest account

OUTPUT CONTROLS
Output controls are designed to
ensure that information is not lost,
misdirected, or corrupted and that
system processes function as
intended.

SUBSTANTIVE TESTS OF
EXPENDITURE CYCLE
ACCOUNTS

TESTING THE ACCURACY AND

COMPLETENESS ASSERTIONS
REVIEW DISBURSEMENT
VOUCHERS FOR UNUSUAL
TRENDS AND EXCEPTION
A useful audit procedure for
identifying potential audit risks
involves scanning data files for
unusual transactions and accounts
balances

REVIEWING FOR ACCURATE

INVOICE PRICES
Comparing prices on supplier
invoices to original purchase order
prices provides evidence for testing
the management assertion
accuracy.

TESTING THE COMPLETENESS,

EXISTENCE AND RIGHTS AND
OBLIGATION ASSERTION
SEARCHING FOR UNRECORDED
LIABILITIES
The search for unrecorded
liabilities involves the
Disbursement Voucher and
Receiving Report files

SEARCHING FOR
UNAUTHORIZED
DISBURSEMENT VOUCHERS
Review for multiple checks to
vendors
Corporate losses from multiple
payments to vendors for the same
merchandise have been estimated
to be in the hundreds of millions of
dollars per year.

AUDITING PAYROLL AND

RELATED ACCOUNTS
Testing accrued payroll and related
accounts for completeness and
accuracy consist primarily of
analytical procedures and reviews
of cash disbursements made in the
following.