Arens14e ch18 PPT

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9-1
©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 18 - 1

The objective in the audit of the acquisition and payment cycle is to evaluate
whether the accounts affected by the acquisition of goods and services and the
cash
©2012 Prentice disbursements
Hall for those acquisitions
Business Publishing, are fairly
Auditing 14/e, presented in accordance
Arens/Elder/Beasley 18 - 3
with accounting standards.
Ten typical accounts involved in the acquisition and payment cycle are shown
above.
The request for goods and services by the client‘s personnel is the starting
point for the cycle.
©2012 Prentice Hallbusiness

Other Business Publishing,
functions Auditing
involved include14/e, Arens/Elder/Beasley
the processing of purchase orders, 18 - 6
the receiving of goods and services ordered and the recognition of the liability
Payments to vendors reflect an increasing use of electronic payment forms
©2012 Prentice such
Hall as wire transfers
Business and/or ACH
Publishing, payments.
Auditing 14/e, Arens/Elder/Beasley 18 - 7
A purchase requisition is used to request goods and services.
A purchase order is a document used to order goods and services from vendors.
©2012 Prentice Hall Business

A receiving report Publishing,
is a paper or Auditing
electronic14/e, Arens/Elder/Beasley
document prepared at the time goods 18 - 9
are received.
The vendor invoice is a document received from the vendor and shows the
amount owed for an acquisition.
A debit memo is also a document received from the vendor and indicates a
reduction in the amount owed to a vendor because of returned goods or an
allowance granted.
A voucher is commonly used by organizations to establish a formal means of

recording and controlling acquisitions enabling each acquisition to be
The acquisitions journal is often referred to as the purchases journal. It is
generated from the acquisitions transaction file and includes the vendor name,
date, amount and account classification.
The accounts payable master file records acquisitions, cash disbursements and
returns for each vendor.

The accounts payable trial balance includes the amount owed to each vendor or
Most companies use computer-prepared checks based on information included
in the acquisition transaction file when good s and services are received.
The cash disbursements transaction file is a computer generated file that

includes all cash disbursement transactions processed by the accounting
systems Publishing, Auditing 14/e, Arens/Elder/Beasley
for a period. 18 - 12
Tests of controls and substantive tests of transactions for the acquisition and
payment cycle are divided into tests of acquisitions and tests of payments.
The auditor gains an understanding of internal control for the cycle as part of
performing risk assessment procedures by studying the client’s flowcharts
reviewing control questionnaires and performing walkthrough tests for
transactions.
Assessing control risk involves reviewing proper authorization of purchases,

separation of duties, and timely recording and independent review of
transactions and authorization of payments to vendors.
Adequate controls over acquisitions prevent the unintentional recording of
acquisitions that did not occur and are also likely to prevent the client from
including fraudulent transactions that partly benefit management.
Failure to record the acquisition of good and services received understates

accounts
©2012 Prentice payable and
Hall Business may resultAuditing
Publishing, in an overstatement of net income and equity.
14/e, Arens/Elder/Beasley 18 - 18
Tests of details of certain individual accounts can be reduced if the auditor
believes that internal controls are adequate to provide reasonable assurance of
correct Publishing,
classification Auditing journal.
in the acquisitions 14/e, Arens/Elder/Beasley 18 - 19
Transactions in this cycle more commonly require significant judgment.
The dollar amounts of individual transactions in the cycle cover a wide range
as Hall
©2012 Prentice a result auditorsPublishing,
Business commonly segregate
Auditing large
14/e,and unusual items and test them
on a 100% basis.
Efforts to streamline the purchasing of goods and services include greater
emphasis on just-in-time inventories and use of technology and e-commerce to
transact business are changing all aspects of the acquisition and payment cycle
for many companies.

Like accounts receivable, a large number of transactions can affect accounts
payable. For this reason, auditors typically set the tolerable misstatement for
In order to assess control risk, auditors must have a thorough understanding of
how these controls relate to accounts payable.
After
©2012 Prentice Hallassessing
Business control risk, theAuditing
Publishing, auditor designs and performs tests of controls
and substantive tests of transactions for acquisitions and cash disbursements.
The use of analytical procedures is as important in the acquisition and payment
cycle as it is in every other cycle.
Because of the emphasis on understatements in liability accounts, out-of-period
liability tests are important for accounts payable. The extent of tests to
uncover
©2012 Prentice unrecordedPublishing,
Hall Business accounts payable depend
Auditing 14/e,heavily on assess control risk
and the materiality of the potential balance in the account.
Sending confirmations to active vendors for which a balance has not been
included in the accounts payable list is a useful means of searching for omitted
amounts.
©2012 Prentice This type
Hall Business of confirmation
Publishing, is commonly
Auditing called a zero balance
confirmation.
Accounts payable cutoff tests are done to determine whether transactions
recorded a few days before and after the balance sheet date are included in the
correct period.
Auditors should distinguish between vendors’ invoices and vendors’
statements in verifying the amount due to a vendor. Auditors get highly
reliable evidence about individual transactions when they examine vendor’s
invoices and related supporting documents such as receiving reports and
purchase orders.

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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9-1

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 18 - 1

©2012 Prentice Hallbusiness

©2012 Prentice Hall Business

A voucher is commonly used by organizations to establish a formal means of

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 18 - 11

The cash disbursements transaction file is a computer generated file that

Assessing control risk involves reviewing proper authorization of purchases,

Failure to record the acquisition of good and services received understates

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 18 - 23

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