Over the past year, it has been determined that there may be some control issues in each of the major transaction cycles. The following is a chart of each cycle with the areas of concern identified.
|Areas of Concern
|The procurement and payment cycle
|There were 4,000 purchase orders that totaled $55 M for raw material. There is concern that not all purchases were completed using formal purchase orders, receipts did not match payment authorizations, and purchase orders were missing.
|The capital acquisition and repayment cycle
|Two capital projects totaling $2.5 M may have been overspent by $600,000 and may not reflect the reported capital spending.
|The sales and cash receipt cycle
|There were 15,000 invoices totaling $122 M in sales. Unauthorized discounts applied to invoices, credit terms applied to invoices may be incorrect, and unaccounted for invoice sequence numbering may be present.
|The accounting for inventory
|There were 6,000 stock keeping units (SKUs) that totaled $22 M. Physical inventories reported inventory losses of $300,000.
Choose one of the specific transaction cycles and complete the following:
- Determine the appropriate methodology for designing tests of controls and substantive tests of transactions.
- I am need help answering the The procurement and payment cycle
Submit a 1-page chart with the following column headings:
|Transaction-Related Audit Objective
|Key Internal Control
|Common Test of Control
|Common Substantive Test of Transactions