Bradmark Comprehensive Case Chapter 10 – Expenditure Cycle

1) From the case description and the associated flowcharts, assess Bradmark’s internal controls over its expenditure cycle procedures. From the case description and the flowcharts, Bradmark could still improve its internal control on the expenditure cycle procedures. The receiving system is not user friendly and any voided mistakes cause a gap in the receiving report number; the point of the RR number as a control is rendered moot. The employees also have to manually input the data. This could cause errors to occur and would be very time consuming. Also to avoid these problems, the management should have a blind document upon receiving their orders so that the clerk would not input it manually, thus, the clerk would only input the numbers of the receive items. 2) Using the case description, the flowchart, the file structure, and financial data below, specify an audit objective (that can be achieved using ACL™) for each management assertion presented in the matrix below. For each audit objective, briefly describe the ACL test procedure. Selected Financial data: Inventory Balance at 12/31/2004 Management Assertion Audit Objective $ 1,108,194.94 Audit Procedures to be Performed Using ACL

Completeness

Determine that accounts payable represent all amounts owed by the organization for purchases of goods & services as of the balance sheet date.

EXTRACT FIELDS PO_Num Product Quantity Rec_Date RR_Num Ven_Num IF NOT (PO_Num = Voucher_Pay.PO_Num) Ensure that the Financial TO "unrecorded.FIL" Statements reflect all goods OPEN and services received by the organization, less return, for To determined what are the period covered. the unrecorded liabilities. Assets, liabilities and equity balances are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. We used the Duplicate to determine whether there are records that are repeated.

Valuation or Allocation

We used the STRATIFY & CLASSIFY to determined the anomalies. Verify that accounts payable It is useful to know are stated at correct amounts whether all payables owed. represents all amounts owed by Bradmark for every goods purchased.

Management Assertion Audit Objective Audit Procedures to be Performed Using ACL Accuracy Establish that purchases transactions are accurately computed and based on correct prices and correct quantities. Download these files to your computer and click on the Bradmark 04 ACL icon. mathematically correct and agrees with the general ledger Also we used the filter accounts. ACL will automatically open the case. To do so follow the instructions on the CD that came with the textbook. The ACL Project and ACL files used in the Bradmark case are located in the Bradmark Data Folder on the website. Hand in a report describing the audit tests and your conclusions about the results of the test. Here you can determine whether their price is right and if there are Ensure that the account discrepancies in the payables subsidiary ledger is amounts. 3) Perform the ACL tests outlined in step 2 above. To document your findings include in your report ACL printouts showing details of test results and the command log. COMPLETENESS: Unrecorded Liabilities: . To answer parts 3 and 4 requires that you install ACL™ Desktop Edition (full educational version) on your computer. from the join table to filter records where PO amounts and Vouchers amount that are not equal. The Project and ACL files for the Bradmark case are located in the Bradmark Data Folder. We used join tables to combine the PO files and the Vouchers file.

VALUATION & ALLOCATION STRATIFY CLASSIFY .

DUPLICATE: ACCURACY .

JOIN VOUCHER & PURCHASE ORDER .

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Verify that accounts payable are stated at correct amounts owed. .) Incorrectly functioning purchase authorization controls causing unnecessary and incorrect orders to be placed with vendors. • • • Audit Procedures to be Performed Using ACL • The auditor can use ACL’s Stratify and Classify features to identify various characteristics and anomalies associated with accounts payable procedures. Document your report with ACL printouts showing details of test results and the command log. Operational/Audit Objective • Establish that purchase transactions are accurately computed and based on correct prices and quantities. Perform the ACL test and prepare a report with your conclusions. Operational/Audit Risk (indicate which) • Improper Segregation of Duties (Warehouse clerk James Walker who is responsible for asset custody should not be given responsibility for maintaining inventory records. Briefly describe the audit objective and ACL procedures to answer this concern.4) Using the matrix format below identify an operational (business) risk related to the expenditure procedures.

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