Modern

Modern Auditing:
Auditing:

Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
th
of
Financial
Reporting,
8
of Financial Reporting, 8th Edition
Edition
William C. Boynton

California Polytechnic State

University at San Luis Obispo

Raymond N. Johnson
Portland State University

Chapter 15 Auditing the Expenditure Cycle

Chapter
Chapter Overview
Overview

The
The Expenditure
Expenditure Cycle
Cycle

Develop
Develop Audit
Audit Objectives
Objectives

Understanding
Understanding the
the Entity
Entity and
and
Environment
Environment

Inherent
Inherent Risk,
Risk, Including
Including the
the Risk
Risk
of
of Fraud
Fraud
Management Misstatement of
Expenditures
Understate expenses
Understate payables

Other Misstatement Factors

High volume of transactions

Unauthorized purchases
Misappropriation
Duplication of payments

Analytical
Analytical Procedures
Procedures

Consideration
Consideration of
of Internal
Internal Control
Control
Components
Components
Control Environment
Risk Assessment
Information and Communication
Monitoring

Study
Study Break
Break
1. The expenditure cycle consists of
all of the following activities,
except:
A.
B.
C.
D.

Purchase transactions
Cash disbursement transactions
Sales transactions
Purchase adjustments

C. Sales transactions

Study
Study Break
Break
2. This analytical procedure calculates the
average number of days it takes to
retire accounts payables.
A.
B.
C.
D.

Current ratio
Quick ratio
Cost of Goods Sold to Accounts Payable
Accounts Payable Turn Days

D. Accounts Payable Turn Days

Purchase
Purchase Transactions
Transactions
Documents
Documents and
and Records
Records
Purchase requisition
Purchase order
Approved vendor master file
Open purchase order file
Receiving report
Receiving file
Vendor Invoice

Purchase
Purchase Transactions
Transactions Common
Common
Documents
Documents and
and Records
Records
Voucher
Exception reports
Voucher summary
Voucher register
Purchase transactions file
Accounts payable master file
Suspense files

Purchase
Purchase Transactions
Transactions
Functions
Functions and
and Control
Control Activities
Activities
Initiating Purchases

Placing vendors on an authorized vendor list

Requisitioning goods and services
Preparing purchase orders

Receipt of Goods and Services

Receiving the goods

Storing goods received for inventory
Returning goods to vendor

Recording Liabilities

Systems
Systems Flowchart
Flowchart Purchase
Purchase
Transaction
Transaction

Systems
Systems Flowchart
Flowchart Purchase
Purchase
Transaction
Transaction

Systems
Systems Flowchart
Flowchart Purchase
Purchase
Transaction
Transaction

Study
Study Break
Break
3. This item is a written offer from the
purchasing department to a vendor or
supplier to purchase goods or services
specified in the order.
A.
B.
C.
D.

Purchase requisition
Purchase order
Receiving report
Receiving file

B. Purchase order

Study
Study Break
Break
4. This function of processing of purchase
transaction includes placing vendors on
an authorized vendor list and preparing
purchase orders.
A.
B.
C.
D.

Initiating purchases
Receipt of goods and services
Recording liabilities
Paying liabilities

A. Initiating purchases

Cash
Cash Disbursement
Disbursement Transactions
Transactions
Common
Common Documents
Documents and
and Records
Records
Check
Check Summary
Cash Disbursements Transaction File
Cash Disbursements Journal or
Check Register

Cash
Cash Disbursement
Disbursement TransactionsTransactionsFunction
Function and
and Control
Control Activities
Activities
Computerized System

Paying the Liability

Recording the Disbursement

Manual System

Paying the Liability

Recording the Disbursement

Systems
Systems Flowchart
Flowchart Cash
Cash
Disbursement
Disbursement Transactions
Transactions

Study
Study Break
Break
5. This record is a report of total
checks issued in a batch or during
a day.
A.
B.
C.
D.

Check
Check summary
Cash disbursements transaction file
Check register

B. Check summary

Purchase
Purchase Adjustment
Adjustment Transactions
Transactions
Common
Common Documents
Documents and
and Records
Records
Purchase Return Authorization

Shipping Report

Debit Memo

Purchase
Purchase Adjustment
Adjustment Function
Function and
and
Controls
Controls
Purchase Returns and Allowances

Other Controls

Tests of Controls

Substantive
Substantive Tests
Tests of
of Accounts
Accounts
Payable
Payable Balances
Balances
Determining Detection Risk for Tests of
Details
Existence and Occurrence
Completeness
Rights and Obligations
Valuation and Allocation
Presentation and Disclosure

Designing
Designing Substantive
Substantive Tests
Tests
Initial Procedures

Analytical Procedures

Designing
Designing Substantive
Substantive Tests
Tests
Tests of Details of Transactions

Vouch Recorded Payables to Supporting

Documentation
Perform Cutoff Tests

Purchases cutoff tests

Cash disbursement cutoff tests
Purchase return cutoff tests

Perform Search for Unrecorded Payables

Subsequent payments

Designing
Designing Substantive
Substantive Tests
Tests
Tests of Details of Balances

Accounts Payable Confirmations

Reconcile Unconfirmed Payables to
Vendor Statements

Tests of Details of Disclosures

Study
Study Break
Break
6. This is a report prepared on the
shipment of goods to vendors
showing the kinds and quantities
of goods shipped.
A.
B.
C.
D.

Purchase Return Authorization

Shipping Report
Debit Memo
Check Summary

B. Shipping Report

Study
Study Break
Break
7. These items include all checks
issued or vouchers paid after the
balance sheet date.
A.
B.
C.
D.

Purchase return cutoff tests

Check summary
Subsequent payments
Confirmation of accounts payable

C. Subsequent payments