Understand the Flows of Significant Classes of Transactions, including Walkthrough Cash DisbursementsRef.:

Understand the Flows of Significant Classes of Transactions, including Walkthrough Cash DisbursementsRef.:A2

Client:Global Home Depot, Inc.,Prepared By: Ma. Teresa Ypil

Period End:December 2014Reviewed By: Nathallie Cabaluna

Professional standards require us to obtain an understanding of the flows of transactions sufficient to identify and understand a) major classes of transactions in the entitys operations; b) how such transactions are initiated; c) significant accounting records, supporting documents and accounts in the financial statements; and d) the accounting and financial reporting process, from the initiation of significant transactions and other events to their inclusion in the financial statements.

Related Accounts

Cash disbursements typically have a significant effect on the following accounts (modify account names as appropriate and list other accounts not pre-populated below):

Cash Accounts payable

Accrued Expenses Purchases

Principal Steps in the Cash Disbursements Flow of TransactionsDocument below the job title(s) of the individual(s) responsible for each of the steps in the cash disbursements flow of transactions. To help ensure that we properly consider the effects of computer processing in making our risk assessments and developing our audit plan, indicate those steps where computer processing is involved by placing an X in the column for the appropriate step.Whenever a certain inventory level goes below the reorder point, the Inventory Clerk will report to the

Purchaser for requisitioning. The Purchaser will determine the supplier and will send copy of the purchase

order to the supplier (via e-mail or by fax), to the Accounting Office and to the one who will receive the goods

(a copy with no details as to the quantity). Upon receipt of the goods, the one who receives will count them and

will notify the Accounting Office of such receipt by providing a receiving report. The Accounting Office will

compare the receiving report with the purchase order and the suppliers invoice, and will record the related

liability. The Accounting Office will send the necessary documents for payment to the President. The President

will review the accuracy and authenticity of the documents prior to the approval of the vouchers for payment.

Then the check will be prepared and mailed to the supplier and the source documents will be stamped PAID.

The Accounting Office will then update the Accounts Payable general and subsidiary ledger.Process StepPerformed By -

(Job Title Only)

1. When inventory runs lower than the reorder point, a report for requisitioning will be sentInventory Clerk

2. Supplier will be chosen and will be sent with a copy of the purchase order.Purchaser

3. Upon receipt of goods, receiver will count them and input them in a blind receiving report and will notify the Accounting Office of such receipt by providing receiving report.Receiving department personnel

4. Receiving report, purchase order and the suppliers invoice will be compared and the liability will be recorded.Accountant (Accounts Payable)

5. Necessary documents will be sent to the President for payment. The President will review the accuracy and authenticity of the documents prior to the approval of the vouchers for payment.President

6. Check will be prepared and mailed to the supplier and the source documents will be stamped, PAIDTreasurer

7. Update the Accounts Payable general and subsidiary ledgerAccountant (Accounts Payable)

Provide any other details that are necessary to understand the initiation, processing, and recording of cash disbursements:

What Could Go Wrongs (WCGW)Accounts and Assertions Affected by WCGW

Balance SheetIncome Statement

What if the company issued a check for payment without receiving any request for payment?Cash may be understated due to double payment; occurrenceOnly balance sheet accounts are affected

What if there is a material discrepancy between the quantities in the receiving report and purchase order whereby understating inventory, and the company has already issued the check to be paid to the supplier.?Cash may be understated, inventory understated, disbursements are overstated- occurrenceCost of goods sold will be overstated and thus understating Net Income-Completeness and Existence

What makes sure that all checks issued corresponds to any payables that are valid?Cash may be understated, disbursements overstated-occurrenceRights and obligation

What makes sure that all purchase order are properly approved?Payables may be overstated- authorizationRights and obligation

What makes sure no double payment occurred?Overstatement of disbursement- OccurrenceOnly balance sheet accounts are affected

What makes sure that purchases are valid?Overstatement of Payables- OccurrenceOverstating Net Income- right and obligation

Consideration of Control Procedures

Professional standards require us to obtain an understanding of a clients control procedures sufficient to develop the audit plan. Document below the control procedures that the client has put in place to prevent or detect errors in processing and recording transactions for this accounting process. It is not necessary to perform walkthroughs of these controls unless we intend to assess control risk below the maximum. The absence of control procedures may require additional audit procedures relating to one or more financial statement assertions for the account(s) affected.

YesNo

Are bank reconciliations performed and reviewed by supervisory personnel, with reconciling items followed-up on and resolved in a timely manner? /

Is someone responsible for ensuring a proper cut-off (i.e., all cash disbursements are recorded in the period made)? /

Are cash disbursement journals reviewed both for unusual items and gaps in the numerical sequence of disbursements? /

Is appropriate documentation (e.g. voucher package) included when cheques are prepared and signed? /

Are all electronic transfers of funds properly approved?/

Are there only a few authorized cheque signers?/

Are limits established for cheque signing authority or are cheques over a certain amount required to be counter-signed?/

Is access to blank cheques and signature plates controlled?/

Walkthrough

Describe the walkthrough tests performed on the flow of transactions. In so doing determine that the walkthrough encompasses the entire flow of initiating, authorizing, recording, processing and reporting individual transactions and, to the extent necessary, related controls. Use original source documentation and information technology that the client personnel typically would use in the flow of transactions:

Performance ConsiderationsYes/No/ N/AInitials & Date

a. Inquire of personnel about their understanding of what is required by the prescribed procedures and, to the extent necessary, controls to determine whether the processing procedures are performed as originally understood and on a timely basis.Inquired of: Understanding the required procedures Date: 9/30/14Key findings : Some employees has different opinions to the prescribed procedures yet, they all have he same gist. Employees has the proper understanding on how to do the process and procedures on the timely basis.

YES MTDY 9/30/14NC

11/30/14

b. Note any exceptions to the prescribed procedures and, to the extent necessary, controls identified and the impact this has on the audit.

YESMTDY 9/30/14NC

11/30/14

c. In instances where we have identified a significant risk and are required to assess control risk, did the walkthrough procedures include an appropriate evaluation of the controls sufficient to determine the effectiveness of the design of the controls and whether controls have been implemented?YESMTDY 9/30/14NC

11/30/14

d. Did our inquiries of company personnel include follow-up questions about what company personnel do when they encounter errors, the types of errors they have encountered, what happened as a result of finding errors, and how the errors were corrected?YESMTDY 9/30/14NC

11/30/14

e. In instances where we identified significant changes in the flow of transactions did we evaluate the nature of the change to determine whether to walkthrough transactions processed both before and after the change?YESMTDY 9/30/14NC

11/30/14

Conclusion (Check box to confirm conclusion)/Our walkthrough procedures have confirmed our understanding of the cash disbursements flow of transactions as evidenced by our system documentation.

Understand the Flows of Transactions(R12-07)Page 4/4Cash disbursements - SBDP