Essay About Walkthrough Tests And Cash Disbursements

Auditing & Assurance
There are three classes of transactions in the acquisition and payment cycle that auditors have to make sure are presented in accordance with accounting standards when auditing.There are four business functions: processing purchase orders, receiving goods and services, recognizing the liability, and processing and recording cash disbursements. The first three are acquisitions and use purchase information, receiving reports, acquisition transactions, and all have the correct amounts. Processing and recording cash disbursements is in the cash disbursement class which reduces balances in the liability accounts and are a significant part of all entities.Understanding the entities internal control and performing walkthrough tests help the auditor with the acquisition and payment cycle. Both acquisitions and cash disbursements use the objects of: occurrence, completeness, accuracy, posting and summarization, classification, and timing to make sure internal control is performed correctly.Auditors prepare tests for accounts receivable are in a similar manor as accounts payable. There are four analytical procedures for accounts receivable and the possible misstatements that go with them.Tests of details include out-of-period liability tests and cutoff tests. The out-of-period liability tests examine the underlying documentation and trace vendor’s reports, statements, and confirm with the vendor the amounts are correct. The cutoff tests verify the physical inventory is there and if there is any in transit. Those inventory items in transit depend on if they are FOB destination or FOB origin because that determines if the entity still has position of it or not, which determines if it needs to be included.The auditor must make sure that they use documentation from the third party to compare the amounts are correct and have not been altered in any way.