Expenditure Cycle
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CPA Auditing and Attestation (AUD) › Expenditure Cycle
Proper segregation of duties requires that
The purchasing agent does not prepare purchase orders
Purchase requests are generated by the purchasing agent
Bank reconciliations are not done by those in charge of disbursements
The receiving clerk signs the purchase order
Explanation
Proper segregation of duties requires that bank reconciliations are prepared by those employees not associated with disbursing funds.
Physical control over those in charge of disbursement would be:
Proper authorization by a supervisor
Bank reconciliations are performed timely
Employees in charge of cash disbursements are bonded
Proper review of timecards are established
Explanation
Physical control is not associated with procedures. The use methods to protect assets such as physical barriers and mitigating activities such as insurance. The other examples are procedural internal control methods.
Of the following, which is not a purchase transaction that should be segregated in the expenditure cycle?
Purchase requisition
Cash receipts
Purchase orders
Receipts of goods or services
Explanation
Cash receipts would be involved in the revenue cycle so it could not be included in the expenditure cycle.
The authority to accept incoming goods in receiving should be based on a(n):
Approved purchase order
Vendor invoice
Materials requisition
Bill of lading
Explanation
The authority to accept incoming goods in receiving should be based upon an approved purchase order.
In auditing A/P, an auditor's procedures most likely would focus primarily on management's assertion of:
Existence
Completeness
Valuation and allocation
Understandability and classification
Explanation
When testing liabilities, an auditor generally is concerned about understatement. Therefore, in auditing A/P, an auditor's procedures most likely would focus primarily on management's assertion of completeness.
At the end of each month, the senior accountant compares a vendor statement to the accounts payable. This is an example of a
review procedure
Physical control
segregation of duty
Authorization
Explanation
Comparing independent documents with company records is a form of the review procedure. It doesn’t require authorization or physical control.