Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
18Chapter
AUDIT OF THE
ACQUISITION AND
PAYMENT CYCLE,TESTS
OF CONTROLS,SUBSTANTIVE TESTS OF
TRANSACTIONS,AND ACCOUNTS PAYABLE
FALSE PURCHASES CAMOUFLAGE
OVERSTATED PROFITS
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Accounts and Classes of Transactions
in the Acquisition and Payment Cycle
1,Acquisition of goods and services
2,Cash disbursements
3,Purchase returns and allowances
and purchase discounts
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
FIGURE 18 -1
Accounts in the Acquisition and Payment Cycle
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
BUSINESS FUNCTIONS IN THE CYCLE
AND RELATED DOCUMENTS AND RECORDS
Processing Purchase Orders
Purchase Requisition
Purchase Order
Receiving Goods and Services
Recognizing the Liability
Acquisitions Journal
Summary Acquisitions Report
Vendor’s Invoice
Debit Memo
Voucher
Accounts Payable master file
Accounts Payable Trial Balance
Vendor’s Statement
Check
Cash Disbursements Journal
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
FABLE 18 -1
Classes of Transactions,Accounts,Business Functions,and
Related Documents and Records for the Acquisition and Payment Cycle
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
FIGURE 18 - 2
Methodology for Designing
Tests of Controls and
Substantive Tests of
Transactions for
Acquisition and
Payment Cycle
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
The auditor gains an understanding of internal control for the
acquisition and payment cycle by studying the client’s flowcharts,
preparing internal control questionnaires,and performing walk-
through tests for acquisitions and cash disbursements.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Authorization of Purchases
Separation of Asset Custody from Other functions
Timely Recording and Independent Review of Transactions
Authorization of Payments
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Identify the key internal controls and weaknesses and
assess control risk,It is then appropriate to decide whether
substantive tests will be reduced sufficiently to justify
the cost of performing tests of controls.
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Design Tests of Controls
and
Substantive Tests
of
Transactions for Acquisitions
Recorded Acquisitions are for Goods and Services Received,
Consistent with the Best Interests of the Client (Existence)
Existing Acquisitions Are Recorded (Completeness)
Acquisitions Are Accurately Recorded (Accuracy)
Acquisitions Are Correctly Classified (Classification)
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
METHODOLOGY FOR DESIGNING TESTS OF
DETAILS OF BALANCES FOR ACCOUNTS PAYABLE
Set Tolerable
Misstatement and Assess
Inherent Risk
Phase I
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Assess Control Risk
and Design and Perform
Tests of Controls
and Substantive Tests
of Transactions
Phases I
and II
Arens,Loebbecke; Auditing,8/E
2000 Prentice Hall,Inc.
Design and Perform
Analytical Procedures
Phase
III
Design and Perform Tests
of Details of Accounts
Payable Balance