[ayc311]

Hi guys, would anyone be able to explain to me followings as simplistic way as possible, as I have zero accounting work experience and got my undergrad over a decade ago, so I am a little confuse even after reading the explanations.

1- For questions such as-> for detecting overstatement of sales; auditor should vouch transaction from accounting records to the source documents -> can anyone kindly explain to me the full logistics of such events as in the very basic of it all, and explain other related tests of details such as sales documents to accounting records; what do they exactly mean, which events supposed to come first n which events are interrelated.

2- For questions such as which of the following controls is not usually performed in the vouching payable department?-> Accounting for for unused pre-numbered purchases orders n receiving reports. I know there were 3 rights answers but I am having difficult time in understanding full logistics of it all. I know there are segregations of duties that need to be followed, but getting confused as to which transactions are to be done by which departments. I understand that employee who signs checks last should mail the disbursement checks n remittance advices but I am not fully confident that I understand what exactly disbursement checks n remittance advices n other tasks are, though I have an idea but having hard time picturing it together in my head.

Maybe I should taken FAR first to understand the cycle of accounting n such but here I am!! Any help would be appreciated, thank you all.

[Sam]

I can try to address the first one in a simple way, but I always struggled with controls/duties so I'll defer that to someone else. I hope this helps!

So in general, assets and sales are more likely overstated; liabilities and expenses are more likely to be understated. Legitimate errors can go either way, but in the case of fraud, a company wants to appear better off than they really are (i.e. overstating sales/assets or understating liabilities/expenses). Once we establish that, we move to procedures.

If a company says they have X amount of assets or revenues, we want to perform procedures to ensure that they really EXIST: we VOUCH down from the accounting records (what the company says they have) to the source documents (i.e. an invoice for a purchased asset), evidence that they do exist.

The process is flipped for liabilities and expenses. They company might say they have X amount, and as auditors, we want to ensure that number is COMPLETE, that there isn't more they aren't recording. For this, we TRACE up from the source documents (i.e. a vendor invoice) to the accounting records (financial statements, ledgers, etc.) – making sure they recorded them.

Stumbled on this video after I wrote most of this, and it hits these points pretty well, with visual aids!

[water]

For #2 – I just did that question yesterday. From what I gathered, “voucher payable department” in the question refers to accounts payable department, NOT the person that mails the check – they are trying to trick you. I like to remember that in the purchasing cycle, A/P dept has the biggest job. They have to compare purchase order, receiving report, and vendor's invoice to match the amounts and items all three ways (authorization). Then, a different individual in the department must record the purchase in the A/P ledger (recording) and they can also prepare the check (this is ok – unsigned check is not custody of cash yet). Then the treasurer signs and mails the check (custody) and also cancels/marks the supporting documents as complete.

Remittance advice is just the memo that is mailed with the check – it was attached to vendor's invoice, to be removed and remitted with payment.

The answer indicates that blank receiving reports & purchase orders (unused, pre-numbered) belong to receiving dept and purchasing dept, not the payables dept.

[ayc311]

Thank you both, very helpful, @water, best of luck to u with your audit exam but based on your previous scores, looks like u wont need to break a sweat, lucky u!!

[Author]

Replies