Transaction Cycle Risks
Lesson:
In accounting and auditing, a transaction cycle is a group of related business activities and transactions that follow a logical sequence from start to finish.
Rather than looking at millions of random entries, auditors break a business down into these cycles because the transactions within them usually involve the same people, the same documents, and the same internal controls.
The most critical cycles to know are:
- Revenue Cycle
- Expenditure Cycle
- Inventory and Production Cycle
- Payroll Cycle
You're an auditor, explaining transaction cycles to a firm's owner.
The only relevant information you've discovered is as follows:
- You're examining the Payroll Cycle.
What should auditors be most worried about for this transaction cycle?
Answer:
- The firm may be paying people who shouldn't be gett paid.
Explanation:
-
The payroll cycle manages the hiring of employees, the recording of time worked, the calculation of wages and taxes, and the distribution of paychecks.