Specific Transaction Cycles

Question 1

Why do auditors emphasize transaction cycles?

Answer 1

Control risk is generally constant within a particular category of transactions, as all transactions are processed the same way. So, the transaction cycle is the highest level of aggregation for which control risk may be viewed as a constant.

Question 2

What is meant by the term “transaction cycle.”

Answer 2

A group of essentially homogeneous transactions (i.e., transactions of the same type)

Question 3

List the three categories of incompatible functions associated with segregations of duties.

Answer 3

1. )Authorization of transactions (execution function)
2. )Accounting (recordkeeping function)
3. )Access to assets (custody function)

Question 4

List some examples of major transaction cycles.

Answer 4

1. )Revenue/receipts
2. )Expenditures/disbursements
3. )Payroll
4. )Inventory (especially for manufactured inventory)
5. )Fixed assets
6. )Investing/financing