Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions,...

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Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable. by Mind Map: Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable.

1. Classes of transactions

1.1. Acquisitions of goods and services

1.2. Cash disbursements

1.3. Purchase returns and allowances and purchase discounts.

2. Acquisitions

2.1. -Inventory -Property, plant, and equipment -Prepaid expenses -Leasehold improvements -Accounts payable -Manufacturing expenses -Selling and administrative expenses

3. Business Functions in the Cycle

3.1. Processing Purchase Orders

3.2. Receiving Goods and Services

3.3. Recognizing the Liability

3.4. Processing & Recording cash disbursements

4. Cash disbursements

4.1. Cash in bank (from cash disbursements)

4.2. Accounts payable

4.3. Purchase discounts

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6. Related Documents and Reports

6.1. Processing purchase orders

6.1.1. Purchase requisition Purchase order

6.2. Receiving goods and services

6.2.1. Receiving report

6.3. Recognizing the liability

6.3.1. Vendor’s invoice Debit memo Voucher Acquisitions transaction file Acquisitions journal or listing Accounts payable master file Accounts payable trial balance Vendor statement

6.4. Processing and recording cash disbursements

6.4.1. Check Cash disbursements transaction file Cash disbursements journal or listing

7. Understand Internal Control

7.1. Study the client’s flowcharts Review internal control questionnaires Perform walk-through tests

8. Assess Planned Control Risk

8.1. Authorization of purchases Separation of asset custody from other functions Timely recording and independent review of transactions Authorization of payments

9. Determine Extent of Testing of Controls

9.1. The auditor identifies the key internal controls and weaknesses and assesses control risk

9.2. The auditor performs tests of controls to obtain evidence that controls are operating effectively

10. Controls and Substantive Tests of Transactions for Acquisitions

10.1. Recorded acquisitions are for goods and services received (occurrence) Existing acquisitions are recorded (completeness) Acquisitions are accurately recorded (accuracy)

11. Attributes Sampling

11.1. Because of the importance of tests of controls and substantive tests of transactions for acquisitions and cash disbursements, the use of attributes sampling is common in this audit area.

12. Out-of-Period Liability Tests

12.1. Examine underlying documentation for subsequent cash disbursements Examine underlying documentation for bills not paid several weeks after the year-end Trace receiving reports issued before year-end to related vendors’ invoices