testing internal controls transaction cycles

Transaction level assertions

revenue

expenses

gains and losses

depreciation and amortization

segregation of duties (revenue cycle)

sales department

credit approval department

shipping department

billing department

revenue cycle description

sales department sends sales order form to the credit approval department if its a credit sale. If not, its sent directly to the shipping department which prepares shipping documentation which is sent to the customer and billing department. The billing department then compares all of this information and prepares invoices. Then the accounting team records the sales in the general ledger

authorization

sales department

authorization

credit department

custody

shipping department 

recordkeeping

billing department

sales manager

authorization. responsible for authorizing and initiating the sales process by generating internal sales orders

credit manager

authorization. conducts credit checks and approves credit terms for customers, ensuring they meet the company’s credit policies

Warehouse clerk

custody. holds custody of the inventory. manages the physical inventory and releases items for shipping upon receipt fo an approved internal sales order

shipping clerk

custody. responsible for shipping inventory to the customer. handles the actual shipping process ensuring that goods are sent to the correct customer location based on the approved sales order

billing clerk

recordkeeping. generates invoices based on approved sales orders and shipping details and sends them to customers

recievables clerk

recordkeeping. records the details of sales invoices in the accounts receivable master file, ensuring accurate tracking of amounts due

general ledger bookkeeper

recordkeeping. posts sales transactions to the general ledger, ensuring accurate financial reporting

expenditure cycle

The purchase requisition dept sends the purchase order from to the purchase dept and the accounting dept. then the procurement dept seeks the best offer, proceeds with the order and sends purchase orders to the requisition, receiving, accounting depts, and the vendor. then the receiving dept creates the receiving report and sends to accounting which will compare the voucher package

voucher package

purchase order form

invoice

receiving report

authorization

procurement dept

recordkeeping

accounting dept

custody

receiving dept

segregation of duties (expenditure cycle)

purchase dept. 

receiving dept. 

accounting dept.

purchasing clerk

authorization. initiates and authorizes purchases by generating purchase orders

recieving clerk

custody. receives goods and matches them to purchase orders. prepares receiving report

accounts payable clerk

recordkeeping. receives purchase orders, invoices, receiving reports, matches them and updates the accounts payable master file

treasurer

authorization. recieves payment vouchers, reviews and approves all cash disbursements. prepares checks and mails them

general ledger bookkeeper

recordkeeping. receives copies of purchase orders, receiving reports, payment vouchers, and cash disbursement records. posts to the general ledger

inventory cycle

procurement seeks the best offer, proceeds with the order and sends purchase orders to the receiving dept. which counts the inventory and prepares the receiving report then the warehousing dept. holds custody of the inventory. and sends it to the shipping dept when it will be sent to the customer

custody

warehousing dept.

personnel & payroll cycle

the payroll dept. will receive the pay rate authorization and approved time record and update employee records and payroll journal and send any unsigned checks to the treasury dept. which will sign them and give them to the employees. then the accounting department will update the general ledger

segregation of duties (personnel and payroll cycle

human resources (hiring and firing)

payroll (accounting)

treasurer (issues payment)

cash receipts cycle

the customer sends a check to the mailroom which sends it in the form of the check listing summary to the cashier who deposits the checks and sends it to accounts receivable and accounting

custody

mailroom department

custody

cashier

recordkeeping

accounts recievable department

recordkeeping

accounting department

segregation of duties (cash reciepts cycle)

accounts recievable

cashier

accounting department

fraud risks related to cash

lapping and kiting

lapping

team member has access to both cash handling and recordkeepingwhat happens is the the employee keeps cash and fails to record the transaction

kiting

floating checks from one bank account to another, but no record is made until after year end

property plant and equipement (pp&e) cycle

requisition dept will submit a request to purchase. the acquired assets should have a corresponding serially numbered amount which should be listed within the general ledger. disposition: mgmt. should document when fixed assets are no longer being used/obsolete/sold

segregation of duties (pp&e cycle)

requisition

security

disposition

financing cycle

board of directors should approve any issuance or repayment of debt or equity. recordkeeping should be strong, and bonds should  have a n independent trustee. comparisons of records should be made so that everything is correct