Audit of the Acquisition and Payment Cycle
Chapter Objectives
After successfully completing this chapter, you should be able to:
Identify business functions, transactions, accounts affected, and documents & records in the
acquisition and payment cycle
Identify potential misstatements in acquisition and payment transactions
Assess control risk and designing tests of controls & substantive tests of transactions for acquisitions
and payments
Design and perform tests of account balances affected by acquisition and payment cycle
ACCOUNTS AFFECTED IN THE ACQUISITION AND PAYMENT CYCLE
Purchases
purchase returns and allowances
purchase discounts
cash in bank
inventory
accounts payable
property, plant, and equipment
prepaid expenses
manufacturing, administrative, selling
expenses
CLASSES OF TRANSACTIONS IN THE ACQUISITION AND PAYMENT CYCLE
acquisition of goods and services, including returns and allowances
Returns and allowance transactions
cash disbursements for those acquisitions
BUSINESS FUNCTIONS IN THE ACQUISITION AND PAYMENT CYCLE
An employee recognizes a need for a purchase; completes a requisition and sends it to purchasing.
Purchasing department shops for the appropriate quality at the best price, then prepares a purchase
order (processing purchase orders)
When goods arrive from the vendor, the receiving dept inspects, counts, and prepares a receiving
report (Receiving goods and services)
When the vendor’s invoice arrives, accounts payable enters the amount in the acquisitions journal and
the accounts payable master file (Recognizing the liability)
Before the due date, a cheque is mailed to the vendor and the payment is recorded in the cash
payments journal and accounts payable master file (processing and recording cash disbursements)
DOCUMENTS AND RECORDS IN THE ACQUISITION AND PAYMENT CYCLE
Purchase requisition,
1 | PageAuditing Principle s II/AAU/ /April 2016