Question

Mention audit procedure that used to test the existence or occurrence and completeness assertions of client account payable and cash disbursement!

Answer 1

AUDIT FOR COMPLETENESS
Auditing for completeness addresses the foremost auditing objective that is the foremost vital a component of the accounts payable auditing process.

Cut-off tests, reconciliation and audit trails are the primary ways auditors can indicate whether documents are properly recorded and calculated. a company must show in their year-end financial statements cut-off tests for purchases and cash payments for goods and services received by the tip of that year. Auditors will use an audit trail to match payments to recorded payables and may seek out open files with unmatched documents.



For cash disbursement transactions you'd wish to check five assertions: occurrence, completeness, authorization, accuracy, and cutoff.

Completeness: Completeness evaluates the management assertion opposite of occurrence. within the purchasing and payable process, understatement is your highest risk.

Authorization: This step addresses whether your client’s management and staff follow proper internal controls or other company authorization procedures when handling revenue transactions. Cash disbursements should be approved by the suitable level of management. to test this assertion, select a sample of payments and ensure all payments have proper authorization.

A further step is to vouch the cash disbursement back to the source document. In larger companies, an employee within the originating department may authorize an invoice for payment. therein case, ensure different types of expenses are being approved by individuals who would be familiar with the kind of expense. as an example, approval for an advertising expense should come from an employee in marketing, not an employee in manufacturing.

Accuracy: Testing accuracy addresses whether transactions are free from error. For cash disbursements transactions, three potential issues exist. If you discover errors in any of the three, the client can easily correct them:

Dollar amount: Did the company record the payment for the proper dollar amount? If not, have the client edit the payment by entering the correct amount.


Client posting: Was the correct vendor account reduced? If the payment posts to the inaccurate vendor, have the client edit the affected vendor ledgers.

Account posting: Was the payment taken to the right plan account? everywhere again, having the client take the payment to the correct account might be a fixing.

Cutoff: Clients may attempt to move accounting transactions from one year to a distinct to means more positive results. Your job as an auditor is to possess reasonable assurance the company records payables and payments when they’re incurred.

You test for cutoff by selecting a sample of receiving reports and ensuring the client records the associated vendor invoice. you will be ready to also select a sample of vendor invoices and trace them back to the client’s books. confirm the invoice date matches the date the invoice is recorded.

Occurrence: Occurrence tests whether the payment transactions actually transpire. Here’s what you’re looking for:

Did the corporate record the payment within the books but never cut the check?
Did the corporate prepare the check but never mail it to the vendor?

Accounts payable is also a vital area of your business to audit due to risk.

To audit accounts payable, you'd prefer to match the ledger transactions to the figures in your ledger. Cutoff tests check on whether transactions for the year are indeed included in your business’ end of year financial statements.

Often an accounts payable audit are the only focus of an audit. this might be because it's easy to extend a company’s earnings by not recording period-end payables and much of styles of theft occur within the accounts payable area.



The following questions reflect common internal accounting controls related to paying bills. you'll wish to use this list to review your own internal accounting controls and determine which areas require further action.

Are all disbursements, except those from money, made by pre-numbered checks?
Are voided checks preserved and filed after appropriate mutilation?
Is there a written prohibition against drawing checks payable to cash?
Is there a written prohibition against signing checks in advance?
Is a cash disbursement voucher prepared for each invoice or request for reimbursement that details the date of check, check number, payee, amount of check, description of travel and entertainment account (and restricted fund) to be charged, authorization signature, and accompanying receipts?
Are all expenditures approved before by authorized persons?
Are signed checks mailed promptly?
Does the check signer review the cash disbursement voucher for the proper approved authorization and supporting documentation of expenses?
Are invoices marked paid with the date and amount of the check?
Are requests for reimbursement and other invoices checked for mathematical accuracy and reasonableness before approval?
Is a cash disbursement journal prepared monthly that details the date of check, check number, payee, amount of check, and columnar description of accounting (and restricted fund) to be charged?
Is check-signing authority vested in persons at appropriately high levels within the organization?
Are the numbers of authorized signatures limited to the minimum practical number?
Do larger checks require two signatures?
Are bank statements and canceled checks received and reconciled by a private independent of the authorization and check signing function?
Are unpaid invoices maintained in an unpaid invoice file?
Is a list of unpaid invoices regularly prepared and periodically reviewed?
Are invoices from unfamiliar or unusual vendors reviewed and approved for payment by authorized personnel who are independent of the invoice processing function?
If the organization keeps an accounts payable register, are payments promptly recorded within the register to avoid double payment?
If purchase orders are used, are all purchase transactions used with pre-numbered purchase orders?
Are advance payments to vendors and/or employees recorded as receivables and controlled during a very manner which assures that they're going to be offset against invoices or expense vouchers?
Are employees required to submit expense reports for all travel related expenses on a timely basis?

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