Expenditure Cycle M2

Question 1

What is the Expenditure proper segregation of duties?

Answer 1

MANAGEMENT
Prepares purchase requisition

PURCHASE DEPARTMENT
Prepare the purchase order

ACCOUNTS PAYABLE DEPARTMENT
should match the purchase order, receiving report, and vendor invoice

THE TREASURER
Should prepare, sign, and mail the check./ Cancel the voucher package and keep in a file called cancelled package voucher file.

Question 2

What are the functions performed in expediture cycle by the A/P department?

Answer 2

1. Record the payable
2. Approve the invoice for payment
3. Record the payment after it is paid by the treasurer

Question 3

What is the auditor looking for when procedures are performed on a interim date?

Answer 3

• Find significant matters affecting the year-end financial statements, such as related parties, etc.
• During planning, the auditor is required to do preliminary planning such as obtaining an understanding of the entity and its environment, including its internal control, and to assess risk.
• The auditor should consider whether the year-end balances of a particular asset or liability accounts are reasonably predictable with respect to amount, significance, and composition, such as inventory.

Question 4

What is the cash disbursement process for strong internal controls?

Answer 4

1. A/P department prepares and verifying the accuracy of supporting documents and approving the unpaid voucher.
2. The voucher package is then forwarded to the Treasurer, who reviews the documentation, and signs and mails the checks to the vendors.
3. The Treasurer cancels the voucher packages and maintaining them in a cancelled voucher package file.

Question 5

What are some audit procedures to search for unrecorded liabilities?

Answer 5

• Unmatched invoices and unbilled receiving reports may indicate that an unrecorded liability exists.
• Payments made subsequent to the end of the period may relate to liabilities in existence at year-end.
• Unbilled professional fees

Question 6

When would a auditor send A/P confirmations?

Answer 6

• When good external evidence is available to support accounts
  payable, then confirmations are not required.
• Used if monthly vendor statements are not available, if there are disputed amounts, or if the client’s internal control over accounts payable is weak.
• The auditor would send out accounts payable confirmations that are positive or blank only.
• Auditor would typically select vendors with small or zero balances for accounts payable confirmations.

Question 7

What is the difference in a credit memo and a debit memo?

Answer 7

• Goods are returned to a vendor, the
  purchasing department should send a debit memo to the accounting department to reduce AP.
• A credit memo is generally used to reduce accounts receivable.