ACL Exercise on Expenditure Cycle

Name: ____________________________________ Year & Section: ___________ Date: ____________

IMPORTANT: Rename your project and the document. Use the Bradmark project.

1) Testing the Accuracy and Completeness Assertions: Review Disbursement Vouchers for Unusual
Trends and Exceptions - The auditor can use ACL’s Stratify and Classify features to identify various
characteristics and anomalies associated with accounts payable procedures. Both of these functions
are used to group data into predetermined intervals, count the number of records that fall into each
interval, and accumulate a financial value for each interval. The stratify function groups financial
data into specific strata. Analyze the result.

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2) Testing the Accuracy and Completeness Assertions: Reviewing for Accurate Invoice Prices -
Testing pricing accuracy involves matching records from the two files using ACL’s Join feature. This
can be accomplished in a few simple steps. First, both files being joined need to be ordered on a
common key. PO Number is a common secondary key. Reorganizing both files on this field requires
opening each file separately, invoking ACL’s sort function, specifying the sort field, and designating
the file name to receive the sorted output. The results of this process will be two new files ordered
in the same sequence. The next step is to combine the two files to create a third output file. The
auditor achieves this with the Join command. Several options are available when joining files. The
relevant option in this case is to create an output file that consists only of matched records from the
two files. ACL’s Join feature permits the auditor to specify the fields from the two input files that are
to be passed to the new output file. Usually, it is neither necessary nor desirable to include all fields
from both of the original files. The fields needed from the Purchase Order file to verify pricing
accuracy are PO Number and PO Amount; from the Disbursement Voucher file the fields are
Voucher Number, Amount, Check Number, and Vendor Number.

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3) Testing the Completeness, Existence, and Rights and Obligations Assertions: Searching for
Unrecorded Liabilities - The search for unrecorded liabilities involves the Disbursement Voucher and
Receiving Report files. Each record of an inventory receipt contained in the Inventory Report File for
the period should match a corresponding record in the Disbursement Voucher file. Again, using the
Join feature, the two files can be compared for the existence of mismatched records. The two files
being joined need to be ordered on a common key, which, again, is PO Number. Since the
Disbursement Voucher file was previously sorted on this key, that sorted output file can be used for
this test also. Therefore, only the Receiving Report file needs to be reorganized. The next step is to
join the two files to create a combined output file. This time, however, the output option is different
from the previous example. The relevant option in this case is to create an output file that consists
only of unmatched records from the primary file. Remember, the auditor is attempting through this
 test to identify receiving report records that have not been recorded as liabilities. The primary file in
this instance is the Receiving Report file, and the Disbursement Voucher file is the secondary file. In
choosing this option, all the inventory receipts that were correctly recorded as liabilities will be
ignored by the Join process. Only the unmatched receiving report records will be contained in the
new output file.

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4) Testing the Completeness, Existence, and Rights and Obligations Assertions: Searching for
Unauthorized Disbursement Vouchers - A variation on the preceding test can be used to address
questions pertaining to overstated accounts payable. By selecting the Disbursement Vouchers file as
the primary file and the Receiving Report file as the secondary file, the preceding test will produce a
file of vouchers for which the organization has no record of inventory receipts. This might indicate
that payments are approved solely on the basis of receiving a supplier’s invoice rather than also
verifying that inventories were ordered and actually received. Unsupported disbursement vouchers
may signify an attempt at fraud or a poor control environment in which multiple payments are made
for the same purchase.

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5) Testing the Completeness, Existence, and Rights and Obligations Assertions: Review for Multiple
Checks to Vendors - Corporate losses from multiple payments to vendors for the same merchandise
have been estimated to be in the hundreds of millions of dollars per year. Malfunctioning computer
programs, data entry errors, and the failure of authorization controls are usually the basis for
duplicate payments. Occasionally, however, they are the result of dishonest vendors who attempt to
circumvent internal controls by sending two supplier invoices with different invoice numbers for the
same purchase. Sometimes they send multiple copies of the same invoice or simply add a letter
behind one of the invoice numbers to differentiate them. The auditor can test for duplicate records
in a large file by employing ACL’s Duplicate feature using the Disbursement Voucher file

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6) Your log.

7) Your folder.