Auditing the Cash Disbursement Cycle | Auditing Course | CPA Exam AUD

Summary

This video details the process of auditing cash disbursements, which are a critical part of the acquisition and payment cycle. It outlines the audit objectives, internal controls, tests of control, and substantive testing procedures an auditor uses to ensure the accuracy, completeness, occurrence, and proper timing of cash disbursement records. The lecture covers different assertions, explaining how each is addressed through various audit techniques.

Highlights

Introduction to Auditing Cash Disbursements00:00:00

This session introduces the auditing of cash disbursements as a component of the acquisition and payment cycle. It's crucial to ensure that recorded transactions are legitimate, accurate, complete, and properly classified. The audit process involves evaluating internal controls, performing tests of control, and conducting substantive testing to verify financial records' accuracy and integrity.

Auditing for Accuracy of Cash Disbursements00:03:19

To ensure accuracy, auditors check that recorded amounts are correct. Key internal controls include internal verification of calculations and independent reconciliation preparation. Tests of control involve observing verification procedures and inspecting bank reconciliations. Substantive testing includes comparing canceled checks and bank records with cash disbursements and recalculating selected transactions.

Auditing for Completeness of Cash Disbursements00:05:24

For completeness, auditors verify that all valid disbursements are recorded, with nothing missing. Companies should use pre-numbered checks in sequence and have monthly bank reconciliations reviewed by an independent person. Tests of control include verifying the sequence of issued checks and observing the bank reconciliation process. Substantive testing involves comparing cash disbursement records with bank statements and tracing canceled checks to the cash disbursement journal.

Auditing for Occurrence of Recorded Cash Disbursements00:07:34

To confirm occurrence, auditors ensure recorded disbursements actually happened and were for legitimate goods/services. Key internal controls are proper segregation of duties, requiring support documentation for payments (purchase orders, receiving reports, invoices), and approval before issuing checks. Tests of control involve observing and interviewing personnel and vouching canceled checks to authorization records. Substantive testing includes vouching cash disbursement journal entries back to canceled checks, receiving reports, and invoices.

Auditing for Timing of Cash Disbursements00:09:53

Timeliness, or cutoff, ensures cash disbursements are recorded in the proper period. Companies should record transactions as soon as approved and internally verify transaction dates. Tests of control include inquiring about and observing the recording process. Substantive testing involves comparing transaction dates on checks, bank statements, and accounting records to ensure appropriate period recording.

Multiple-Choice Question: Existing Cash Disbursement Transaction Recording00:11:30

A multiple-choice question tests the understanding of verifying existing cash disbursement transactions are recorded. The best answer is tracing canceled checks or electronic record disbursements to the related acquisition journal entry. This procedure directly checks if a physical payment has a corresponding entry in the company's accounting records, ensuring transactions are properly recorded.