Cash 1. List The Five Primary Activities Involved in The Acquisition and Payment Cycle

CASH
1. List the five primary activities involved in the acquisition and payment cycle.
 Requisition (request for goods or services)
 Purchase of goods and services
 Receipt of, and account for, goods and services
 Approval of items for payment
 Cash disbursements
2. List at least five common fraud schemes in the acquisition and payment cycle.
 Theft of inventory by employee
 Inventory shrinkage – the reduction in inventory presumed to be due to physical
loss or theft.
 Employees schemes involving fictitious vendors as means to transfer payments to
themselves.
 Large manual adjustments to inventory accounts.
 Schemes to classify expenses as assets
3. Describe the following types of cash accounts:

a. General checking accounts – a deposit account held at a financial institution that
allows withdrawals and deposits. It is very liquid and can be accessed using checks,
automated teller machines, and electronic debits, among other methods.
b. Cash management accounts – a type of bank account in which the bank manages its
customers' money in order to make sure that as much profit as possible is made for
the customer.
c. Imprest payroll accounts – account set up to receive the exact amount of the funds
needed to make payroll for a given pay period.
d. Petty cash accounts – a small amount of cash kept on hand to pay for minor
expenses, such as office supplies or reimbursements.
4. List at least three common controls for petty cash
 Only one person should have access to the petty cash. All requests and distributions
of petty cash should go through that person. The less hands in the cash box, the less
chances for error.
 For every distribution of cash, there should be a corresponding receipt or approved
request form.
 All replenishments of petty cash should come through a check request. The check
request should include the reconciliation of the petty cash box (with receipts) to
ensure that cash is only being requested as needed.
PPE
5. Identify potential fraud schemes related to long-lived assets.

 Sales of assets are not recorded, and proceeds are misappropriated.
 Assets that have been sold are not removed from the books.
 Inappropriate residual values or lives are assigned to the assets, resulting in
miscalculation of depreciation.
 Amortization of intangible assets is miscalculated.
 Costs that should have been expensed are improperly capitalized.
 Impairment losses on long-lived assets are not recognized.
 Fair value estimates are unreasonable or unsupportable.
6. Consider the risks typically associated with tangible long-lived assets and identify the
internal controls over these assets that you would expect a client to have in place.
Internal controls applicable to long-lived assets are as follows:
 A subsidiary ledger consisting of a separate record for each unit of property. An
adequate plant and equipment ledger facilitate the auditor’s work in analyzing
additions and retirements, in verifying the depreciation provision and maintenance
expenses, and in comparing authorizations with actual expenditures.
 A system of authorization requiring advance executive approval of all plant and
equipment acquisitions, whether by purchase, lease or construction. Serially
numbered capital work orders are a convenient means of recording authorizations.
 A reporting procedure assuring prompt disclosure and analysis of variances
between authorized expenditures and actual costs.
 An authoritative written statement of company policy distinguishing between
capital expenditures and revenue expenditures. A dollar minimum ordinarily will be
established for capitalization; any expenditures of a lesser amount automatically
classified as charges against current revenue
 A policy requiring all purchases of plant and equipment to be handled through the
purchasing department and subjected to a standard routine for receiving, inspection
and payment.
 Periodic physical inventories designed to verify the existence, location and
condition of all property listed in the accounts and to disclose the existence of any
unrecorded units. including serially numbered.
 A system of retirement procedures, retirement work orders (bottom), stating reasons
for retirement and bearing appropriate approvals.

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CASH

3. Describe the following types of cash accounts:

5. Identify potential fraud schemes related to long-lived assets.

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