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    Erros Noah PDF

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    Anita Noah Melo
    The document provides summaries of three business processes: 1) The sales and collection cycle involves recording sales, receivables, cash receipts, returns, allowances, and write-offs of uncollectible receivables. 2) The acquisition and payment cycle involves recording purchases, payables, and payments through acquisition and cash disbursement transactions. 3) The payroll and personnel cycle focuses on confirming the existence of employees through payroll and earnings records and ensuring completeness through bank statement reconciliations. The document discusses the importance of understanding errors and irregularities in each cycle. For sales and collections, this allows auditors to assess controls and transaction testing. For acquisitions and payments,

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    Erros Noah PDF

    Uploaded by

    Anita Noah Melo
    58 views2 pages
    The document provides summaries of three business processes: 1) The sales and collection cycle involves recording sales, receivables, cash receipts, returns, allowances, and write-offs of uncollectible receivables. 2) The acquisition and payment cycle involves recording purchases, payables, and payments through acquisition and cash disbursement transactions. 3) The payroll and personnel cycle focuses on confirming the existence of employees through payroll and earnings records and ensuring completeness through bank statement reconciliations. The document discusses the importance of understanding errors and irregularities in each cycle. For sales and collections, this allows auditors to assess controls and transaction testing. For acquisitions and payments,

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    The document provides summaries of three business processes: 1) The sales and collection cycle involves recording sales, receivables, cash receipts, returns, allowances, and write-offs of uncollectible receivables. 2) The acquisition and payment cycle involves recording purchases, payables, and payments through acquisition and cash disbursement transactions. 3) The payroll and personnel cycle focuses on confirming the existence of employees through payroll and earnings records and ensuring completeness through bank statement reconciliations. The document discusses the importance of understanding errors and irregularities in each cycle. For sales and collections, this allows auditors to assess controls and transaction testing. For acquisitions and payments,

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    58 views2 pages

    Erros Noah PDF

    Uploaded by

    Anita Noah Melo
    The document provides summaries of three business processes: 1) The sales and collection cycle involves recording sales, receivables, cash receipts, returns, allowances, and write-offs of uncollectible receivables. 2) The acquisition and payment cycle involves recording purchases, payables, and payments through acquisition and cash disbursement transactions. 3) The payroll and personnel cycle focuses on confirming the existence of employees through payroll and earnings records and ensuring completeness through bank statement reconciliations. The document discusses the importance of understanding errors and irregularities in each cycle. For sales and collections, this allows auditors to assess controls and transaction testing. For acquisitions and payments,

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    © All Rights Reserved
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    of 2

    Name: Noah Anita

    Section: MW 8:30am-10am

    Reading Report
    Based on your study of the chapter, kindly prepare a reading report that will contain the following:

    1. Prepare a summary for each business process, namely:


    a. Sales and collection cycle

    The Sales and Collection Cycle, also known as the Revenue, Receivables, and Receipts (RRR) Cycle, is
    comprised of various classes of transactions. The sales class and receipts class of transactions are the
    typical journal entries that debit accounts receivable and credit sales revenue, and debit cash and
    credit accounts receivable, respectively. These are the recording of the sales and cash collection of
    the sale.

    Additionally, there are other classes of transactions in the sales and collection cycle that include
    sales returns and allowances, debit sales returns, credit accounts receivable, write-offs of
    uncollectible receivables (debit allowance for doubtful accounts, credit accounts receivable), and
    bad debt expenses (debit bad debt expense and credit allowance for doubtful accounts). We focus
    here on the more common journal entries.

    b. Acquisition and payment cycle

    The Acquisition and Payment Cycle (also referred to as the PPP Cycle for Purchases, Payables, and
    Payments) is mainly comprised of two classes of transactions. The first class is the acquisition class.
    The typical journal entry for this class of transactions is a debit to inventory or an expense and a
    credit to accounts payable. The classification assertion is highly important in this scenario because
    there are many possible debits that can fulfil the journal entry.

    The second class of transactions in the acquisition and payment cycle is the cash disbursements
    class. The typical journal entry for this class is simply a debit to accounts payable and a credit to
    cash. All in all, this cycle is mainly about incurring payables and paying off those payables with cash.

    c. Payroll and personnel cycle

    The first objective in the payroll and personnel cycle is to confirm existence meaning that it
    should be confirmed that the payments were made to actual employees. In order to accomplish
    this, a review of any unusual amounts in the payroll journal and earnings records should be
    completed. Details of cancelled checks should be confirmed to match the payroll journals.
    Additionally cancelled checks should be reviewed to determine if they have proper
    endorsements and are consistent with personnel records (Arens et. al., 2006).

    The next objective that should be tested is completeness. The first test that should be completed
    is that payroll disbursements in the journal should equal those on the payroll bank statements.
    Finally, a reconciliation of bank statements should be completed
    2. Discuss the importance to an organization of understanding the errors and irregularities in each
    of the business process mentioned above.

     Sales and collection cycle-it is very important to an organization of understanding the errors
    and irregularities in sales and collection cycle especially especially the business organization
    that are dealing with services and customers. An auditor tests the controls you have set up
    for the sales cycle to determine how strong and reliable they are. If they are strong, the
    auditor can reduce the amount of transaction testing he must do. Common internal controls
    over the sales cycle include numbered sales invoices, purchase order authorization over a
    certain limit and authorization over receivables write-offs.
    The auditor selects a random sample of transactions and examines the related purchase
    orders, invoices and customer statements. If the control being tested is numbered sales
    invoices, for example, the auditor ensures that all numbers in a section are accounted for
    and that none are missing. If the control is that all purchase orders are approved by
    management, the auditor checks for a manager's signature on each document. If control
    errors are found, the auditor increases the amount of transactional testing that will be
    conducted in the audit.
     Acquisition and payment cycle-it is important because it is mainly to do with payments and
    cash disbursement. To overcome the errors, the company should adopt this cycle.
    It's easy for things to go wrong in a company's acquisition and payment cycle. Companies
    can overstate the value of the inventory they purchase, which makes assets look bigger than
    they actually are. Management can omit or undervalue their accounts payable, which
    exaggerates financial strength. To prevent this from happening, management and auditors
    closely monitor internal controls and key acquisition accounts.
     Payroll and personnel cycle-it is very important to an organization especially those with
    employees. The common errors and frauds in personnel and payroll cycle are fictitious
    employee (creating fictitious employees on the payroll and converting the pay checks issued
    to such employees); unauthorized payments; incorrect salary payments - falsified sales or
    hours, falsified wages, or workers' compensation.
    Companies should have either internal auditors or external auditors conduct a periodic audit
    of the payroll function to verify whether payroll payments are being calculated correctly,
    employees being paid are still working for the company, time records are being accumulated
    properly, and so forth.

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