Scribd
Upload
21 views

Module 5

The document defines the key finance and accounting functions that an auditor would review, including treasury, payroll, accounts payable, accounts receivable, general ledger, fixed assets, budgeting, banking arrangements, inventories, petty cash, financial reporting, and investments. It provides a brief overview of the processes and controls that should be in place for each function.

Uploaded by

Eric Cauilan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
21 views

Module 5

The document defines the key finance and accounting functions that an auditor would review, including treasury, payroll, accounts payable, accounts receivable, general ledger, fixed assets, budgeting, banking arrangements, inventories, petty cash, financial reporting, and investments. It provides a brief overview of the processes and controls that should be in place for each function.

Uploaded by

Eric Cauilan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 26

CHAPTER 5:

AUDITING THE FINANCE AND ACCOUNTING FUNCTIONS

Defining the Finance and Accounting Universe


There are a number of ways an auditor can define the constituent elements of finance and accounting within an
organisation, for example:
• functionally, based upon the discrete accounting departments that are in place or
• in terms of the financial cycles, such as the revenue cycle, the expenditure cycle or the treasury cycle.
We have chosen to use the functional approach to define the financial and accounting audit universe, which gives us
the following possible breakdown of the key functions, systems or activities: • treasury
• payroll
• accounts payable
• accounts receivable
• general ledger/management accounts
• fixed assets (and capital charges)
• budgeting and monitoring
• bank accounts and banking arrangements
• inventories
• petty cash and expenses
• financial information and reporting
• investments

TREASURY

Here we are primarily concerned with the adequacy of funding and the accountability for transactions, which are
normally, by their nature, of high value. Given these two high-profile attributes, it is preferable that treasury
operations are driven by authorised policies and procedures.
PAYROLL

In most cases it is likely that personnel costs will represent the greatest proportion of total overheads for an
organisation. The scope of the following review points incorporates the initial authorised set-up of new employees,
the processing of suitably authorised amendments (such as salary increases, holiday payments, bonuses), periodic
payroll runs, payment arrangements, the correct accounting for taxation and national insurance deductions,
reconciliation of the payroll, and the removal of employees from the payroll. The payroll function has strong
functional links with the human resources (or personnel) department.
ACCOUNTS PAYABLE

In this area, auditors should be taking an overview which incorporates related processes such as linking to the
original purchase orders or instructions, confirmation of the receipt of goods/services, confirming the accuracy and
validity of invoices, obtaining the authority to pay, maintenance of accurate creditor records, and account
settlement.
ACCOUNTS RECEIVABLE

This area of activity has linkages to the vetting of customers for their stability and sales order processing
GENERAL LEDGER/MANAGEMENT ACCOUNTS

The accounting effects of all the economic events within the organisation are eventually reflected in the general
ledger system and therefore both the overall structure and integrity of the system are critical issues. The general
ledgering system will be used to generate financial information for both internal (i.e. management accounts) and
external (i.e. the statutory accounts) consumption, and therefore it must operate in a stable and secure
environment
FIXED ASSETS (AND CAPITAL CHARGES)

In this section we are concerned with notable investments in such items as buildings, motor vehicles, plant and
machinery, and office and computer equipment. Initially there should be appropriate authorisation for capital
acquisitions, followed by accurate and complete accounting processes covering the purchase, depreciation,
verification and eventual disposal of the assets.
BUDGETING AND MONITORING

Here we are interested in both the general budgeting framework (i.e. how the budgets are initially generated,
authorised and rolled out) and the allocated responsibilities for subsequently monitoring actual performance
against budgets (i.e. identifying and reacting to significant variances, authorising budget amendments, etc.)
BANK ACCOUNTS AND BANKING ARRANGEMENTS

This subject area affects all businesses. The variety of account types and the range of other services offered by the
wider financial services community make the selection of the appropriate account arrangements critical. There is a
fundamental requirement to consider the type of banking facilities best suited to both the operational and financial
needs of the business (for example, in retailing situations where there are likely to be considerable levels of cash
lodgements to be made on a daily basis). Due attention should be paid to the control and monitoring of account
usage, especially where there are in terms of devolved authorities for such activities as cheque signatories and fund
transfers. Regular, independent and effective account reconciliations to internal records are essential, as they can
limit the possibility of defalcation passing undetected
INVENTORIES
In this section we primarily focus on the accounting dimensions of inventories.
PETTY CASH AND EXPENSES

Petty cash reviews are generally related to questions of scale. The levels of petty cash and general expense
expenditure will vary considerably between organisations. Taking account of the possible low level scale of petty
cash costs, management may feel content with the application of common sense controls and cost containment
principles, as it will consider that there are more pressing business issues to address. However, given the relatively
simple processes involved and the possible proliferation of an attitude that “everybody fiddles their expenses, don’t
they?” a lack of basic control can very easily lead to losses and staff behaving unethically.
FINANCIAL INFORMATION AND REPORTING

The issues raised in this section take account of both internal and external financial reporting requirements. The key
concerns relate to accuracy, completeness, timeliness and security of the information.
INVESTMENTS

Given the notable financial and timing implications associated with investment activities, it is crucial that authorised
policies are in place and adhered to.

You might also like