Audit readiness (7) - Expenditure has been saved
Audit readiness (7) - Expenditure
Expenditure on goods and services are usually critical audit focus areas. Expenditure as a business activity is pervasive, frequent in occurrence and impacts most of the IFRSs that entities need to respond to in the course of financial reporting. Directors are responsible for the preparation and fair presentation of financial statements in accordance with the prevailing legislation and reporting frameworks. They are expected to put in place such internal controls as they deem necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Today's article will focus on control activities that External Auditors expect to find during their review of entities' systems of internal controls and test of operating effectiveness of those controls within expenditure cycle.
Subject to materiality and the risk identified on a particular subject area, audit practitioners usually plan to obtain control assurance, or substantive assurance or both assurances during the course of their assurance engagements. The expenditure cycle has among others three principal business activities: Purchasing, Processing Accounts Payable, and Processing Disbursements. Entities are expected to set control objectives within these business activities. When control objectives are set, auditors would expect to identify control activities that addresses those objectives for testing for operating effectiveness. These activities are performed by the application of International Standard on Auditing (ISA) 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment. It is encouraged that preparers of financial statements should study the ISAs alongside the IFRSs to be in a position to anticipate the information and documentation needs of auditors. All ISAs are available for download on www.ifac.org.