Modern Auditing:

Assurance Services and the Integrity of

Financial Reporting, 8th Edition

William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University

Chapter 1 5 – Auditing the Expenditure Cycle

Chapter Overview
• Management Misstatement of
Expenditures
– Understate expenses
– Understate payables

• Other Misstatement Factors

– High volume of transactions
– Unauthorized purchases
– Misappropriation
– Duplication of payments
• Control Environment

• Risk Assessment

• Information and Communication

• Monitoring
• Purchase requisition

• Purchase order

• Approved vendor master file

• Open purchase order file

• Receiving report

• Receiving file

• Vendor Invoice
• Voucher

• Exception reports

• Voucher summary

• Voucher register

• Purchase transactions file

• Accounts payable master file

• Suspense files
• 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
• Check

• Check Summary

• Cash Disbursements Transaction File

• Cash Disbursements Journal or Check Register

• Computerized System
– Paying the Liability
– Recording the Disbursement

• Manual System
– Paying the Liability
– Recording the Disbursement
• Purchase Return Authorization

• Shipping Report

• Debit Memo
• Purchase Returns and Allowances

• Other Controls

• Tests of Controls
• Determining Detection Risk for Tests of
Details
– Existence and Occurrence

– Completeness

– Rights and Obligations

– Valuation and Allocation

– Presentation and Disclosure

• Initial Procedures

• Analytical Procedures
• 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
• Tests of Details of Balances
– Accounts Payable Confirmations

– Reconcile Unconfirmed Payables to

Vendor Statements

• Tests of Details of Disclosures