1 of 16 © 2014 Pearson Education, Inc.. 2 of 16 © 2014 Pearson Education, Inc.
16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment...
-
Upload
randolf-curtis-foster -
Category
Documents
-
view
212 -
download
0
Transcript of 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment...
![Page 1: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/1.jpg)
16 - 1Copyright 2003 Pearson Education Canada Inc.
CHAPTER 16Audit of the Acquisition
and Payment Cycle
![Page 2: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/2.jpg)
16 - 2Copyright 2003 Pearson Education Canada Inc.
What accounts are typically involved in What accounts are typically involved in the acquisition and payment cycle?the acquisition and payment cycle?
![Page 3: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/3.jpg)
16 - 3Copyright 2003 Pearson Education Canada Inc.
- purchases- purchase returns and allowances- purchase discounts- cash in bank- accounts payable- property, plant, and equipment- prepaid expenses- manufacturing, administrative, selling expenses
What accounts are typically involved in What accounts are typically involved in the acquisition and payment cycle?the acquisition and payment cycle?
![Page 4: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/4.jpg)
16 - 4Copyright 2003 Pearson Education Canada Inc.
What What classes of transactionsclasses of transactions occur in occur in the acquisition and payment cycle?the acquisition and payment cycle?
![Page 5: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/5.jpg)
16 - 5Copyright 2003 Pearson Education Canada Inc.
- acquisition of goods and services
What What classes of transactionsclasses of transactions occur in occur in the acquisition and payment cycle?the acquisition and payment cycle?
![Page 6: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/6.jpg)
16 - 6Copyright 2003 Pearson Education Canada Inc.
- acquisition of goods and services- cash disbursements for those acquisitions
What What classes of transactionsclasses of transactions occur in occur in the acquisition and payment cycle?the acquisition and payment cycle?
![Page 7: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/7.jpg)
16 - 7Copyright 2003 Pearson Education Canada Inc.
What is the relationship between the What is the relationship between the sales and collection cyclesales and collection cycle and the and the acquisition and paymentacquisition and payment cycle? cycle?
![Page 8: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/8.jpg)
16 - 8Copyright 2003 Pearson Education Canada Inc.
mmm...an expenditure
mmm...a revenue
What is the relationship between the What is the relationship between the sales and collection cycle and the sales and collection cycle and the acquisition and payment cycle?acquisition and payment cycle?
They are different perspectivesof the same transaction.
![Page 9: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/9.jpg)
16 - 9Copyright 2003 Pearson Education Canada Inc.
What is the What is the sequence of business sequence of business functionsfunctions that occurs in the acquisition that occurs in the acquisition
and payment cycle?and payment cycle?
![Page 10: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/10.jpg)
16 - 10Copyright 2003 Pearson Education Canada Inc.
1. An employee recognizes a need for a purchase; com- pletes a requisition and sends it to purchasing.
PURCHASINGDEPARTMENT
Ace CompanyPURCHASE
REQUISITION
The engineeringdept. needs 200yellow #2 pencils. authorized employee
![Page 11: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/11.jpg)
16 - 11Copyright 2003 Pearson Education Canada Inc.
2. Purchasing shops for the ap- propriate quality at the best price, then prepares a pur- chase order.
PURCHASINGDEPARTMENT
Ace CompanyPURCHASE
ORDERTo: Big Pencil Co.Please ship 200yellow #2 pencilsby 6/2/04.Price .04/each
purchasing agent
BIGPencil Co.
![Page 12: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/12.jpg)
16 - 12Copyright 2003 Pearson Education Canada Inc.
3. When goods arrive from the vendor, the receiving dept. inspects, counts, and pre- pares a receiving report.
RECEIVINGDEPARTMENT
Ace CompanyRECEIVING
REPORTReceived onecase (count 200)yellow #2 pencilson 6/1/04Condition: OK
receiving employee
BIGPencil Co.
BIGPencil Co.
![Page 13: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/13.jpg)
16 - 13Copyright 2003 Pearson Education Canada Inc.
4. When the vendor’s invoice arrives, accounts pay- able enters the amount in the acquisitions journal and the a/p master file.
Accounts PayableDEPARTMENT
Big Pencil Co.INVOICE
Thanks for buy-ing 200 yellow
#2 pencils. Please pay
$8 by 6/15/04
BIGPencil Co.
![Page 14: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/14.jpg)
16 - 14Copyright 2003 Pearson Education Canada Inc.
4. When the vendor’s invoice arrives, accounts pay- able enters the amount in the acquisitions journal and the a/p master file.
Accounts PayableDEPARTMENT
acquisitions journaldescription _ $$ _June 1, 2004Pencils - Big Pencil Co. 8.00
a/p master file vendor _ $$ _June 1, 2004Big Pencil Co. 8.00 balance 8.00
![Page 15: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/15.jpg)
16 - 15Copyright 2003 Pearson Education Canada Inc.
5. Before the due date, a cheque is mailed to the vendor
a/p master file vendor _ $$ _June 1, 19x0Big Pencil Co. 8payment-6/12 8 balance 0
Ace Company BIGPencil Co.
Canada 48
Pace CompanyBig Pencil Co.
Ace Company
CANADIAN BANK
![Page 16: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/16.jpg)
16 - 16Copyright 2003 Pearson Education Canada Inc.
Canada48
cash payments journaldescription _ $$ _June 12, 2004Big Pencil Co. 8.00
Ace Company
Pace CompanyBig Pencil Co.
Ace Company
5. Before the due date, a cheque is mailed to the ven- dor and the payment is recorded in the cash pay- ments journal
BIGPencil Co.
CANADIAN BANK
![Page 17: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/17.jpg)
16 - 17Copyright 2003 Pearson Education Canada Inc.
Canada 45
cash payments journaldescription _ $$ _June 12, 2004Big Pencil Co 8.00
Ace Company
Pace CompanyBig Pencil Co.
Ace Company
5. Before the due date, a cheque is mailed to the ven- dor and the payment is recorded in the cash pay- ments journal and the a/p master file.
a/p master file vendor _ $$ _June 1, 2004Big Pencil Co. 8.00payment-6/12 8.00 balance 0
BIGPencil Co.
CANADIAN BANK
![Page 18: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/18.jpg)
16 - 18Copyright 2003 Pearson Education Canada Inc.
DEBIT MEMO A document indicating a re- duction in the amount owed to a vendor because of re- turned goods or an allow- ance granted.
![Page 19: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/19.jpg)
16 - 19Copyright 2003 Pearson Education Canada Inc.
VOUCHER A document used by organi- zations to establish a formal means of recording and controlling acquisitions.
![Page 20: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/20.jpg)
16 - 20Copyright 2003 Pearson Education Canada Inc.
How does an auditor How does an auditor design tests of design tests of controls for the controls for the acquisitions and acquisitions and payments cycle?payments cycle?
![Page 21: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/21.jpg)
16 - 21Copyright 2003 Pearson Education Canada Inc.
Understand controls asthey relate to acquisi-tions and payments
As discussedin chapter 9
How does an auditor How does an auditor design tests of design tests of controls for the controls for the acquisitions and acquisitions and payments cycle?payments cycle?
![Page 22: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/22.jpg)
16 - 22Copyright 2003 Pearson Education Canada Inc.
Assess the planned con-trol risk related to acqui-
sitions and payments
Understand controls asthey relate to acquisi-tions and payments
How does an auditor How does an auditor design tests of design tests of controls for the controls for the acquisitions and acquisitions and payments cycle?payments cycle?
![Page 23: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/23.jpg)
16 - 23Copyright 2003 Pearson Education Canada Inc.
In assessing control In assessing control risk, the auditor risk, the auditor should consider:should consider: Assess the planned con-
trol risk related to acqui-sitions and payments
Understand controls asthey relate to acquisi-tions and payments
??
![Page 24: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/24.jpg)
16 - 24Copyright 2003 Pearson Education Canada Inc.
In assessing control In assessing control risk, the auditor risk, the auditor should consider:should consider:
- adequate segregation of duties- proper authorization- adequate documents and records- use of prenumbered documents- internal verification procedures
Assess the planned con-trol risk related to acqui-
sitions and payments
Understand controls asthey relate to acquisi-tions and payments
![Page 25: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/25.jpg)
16 - 25Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Assess the planned con-trol risk related to acqui-
sitions and payments
Understand controls asthey relate to acquisi-tions and payments
How does an auditor How does an auditor design tests of design tests of controls for the controls for the acquisitions and acquisitions and payments cycle?payments cycle?
![Page 26: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/26.jpg)
16 - 26Copyright 2003 Pearson Education Canada Inc.
Will substantivetests be reduced
sufficiently to justify the cost ofperforming tests
of controls?
Assess the planned con-trol risk related to acqui-
sitions and payments
Understand controls asthey relate to acquisi-tions and payments
Evaluate cost-benefit of test-
ing controls
![Page 27: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/27.jpg)
16 - 27Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Design tests of controls related to acquisitions &
payments
Assess the planned con-trol risk related to acqui-
sitions and payments
Understand controls asthey relate to acquisi-tions and payments
How does an auditor How does an auditor design tests of design tests of controls for the controls for the acquisitions and acquisitions and payments cycle?payments cycle?
![Page 28: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/28.jpg)
16 - 28Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Design tests of controls related to acquisitions &
payments
Are recorded ac-quisitions for
goods and serv-ices received?
Assess the planned con-trol risk related to acqui-
sitions and payments
In designing audit In designing audit tests for acquisi-tests for acquisi-
tions and pay- tions and pay- ments, the auditor ments, the auditor should consider:should consider:
Understand controls asthey relate to acquisi-tions and payments
![Page 29: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/29.jpg)
16 - 29Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Design tests of controls related to acquisitions &
payments
Assess the planned con-trol risk related to acqui-
sitions and payments
In designing audit In designing audit tests for acquisi-tests for acquisi-
tions and pay- tions and pay- ments, the auditor ments, the auditor should consider:should consider:
Are recorded ac-
quisitions consist-ent with the bestinterests of the
company?
Understand controls asthey relate to acquisi-tions and payments
![Page 30: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/30.jpg)
16 - 30Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Design tests of controls related to acquisitions &
payments
Are allacquisitionsrecorded?
Assess the planned con-trol risk related to acqui-
sitions and payments
In designing audit In designing audit tests for acquisi-tests for acquisi-
tions and pay- tions and pay- ments, the auditor ments, the auditor should consider:should consider:
Understand controls asthey relate to acquisi-tions and payments
![Page 31: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/31.jpg)
16 - 31Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Design tests of controls related to acquisitions &
payments
Assess the planned con-trol risk related to acqui-
sitions and payments
In designing audit In designing audit tests for acquisi-tests for acquisi-
tions and pay- tions and pay- ments, the auditor ments, the auditor should consider:should consider:
Areacquisitionsaccuratelyrecorded?
Understand controls asthey relate to acquisi-tions and payments
![Page 32: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/32.jpg)
16 - 32Copyright 2003 Pearson Education Canada Inc.
Evaluate cost-benefit of test-
ing controls
Design tests of controls related to acquisitions &
payments
In designing audit In designing audit tests for acquisi-tests for acquisi-
tions and pay- tions and pay- ments, the auditor ments, the auditor should consider:should consider:
Assess the planned con-trol risk related to acqui-
sitions and payments
Areacquisitions
correctlyclassified?
Understand controls asthey relate to acquisi-tions and payments
![Page 33: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/33.jpg)
16 - 33Copyright 2003 Pearson Education Canada Inc.
What is the primary audit objective What is the primary audit objective with regard to with regard to payablespayables??
![Page 34: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/34.jpg)
16 - 34Copyright 2003 Pearson Education Canada Inc.
What is the primary audit objective What is the primary audit objective with regard to with regard to payablespayables??
completeness
![Page 35: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/35.jpg)
16 - 35Copyright 2003 Pearson Education Canada Inc.
What What audit proceduresaudit procedures will address will address the the completeness of payablescompleteness of payables??
![Page 36: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/36.jpg)
16 - 36Copyright 2003 Pearson Education Canada Inc.
What What audit proceduresaudit procedures will address will address the the completeness of payablescompleteness of payables??
- enquire of management regarding completeness of payables
![Page 37: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/37.jpg)
16 - 37Copyright 2003 Pearson Education Canada Inc.
What What audit proceduresaudit procedures will address will address the the completeness of payablescompleteness of payables??
- enquire of management regarding completeness of payables- perform analytical procedures on payables (examples: a/p / current liabilities;
a/p / purchases)
![Page 38: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/38.jpg)
16 - 38Copyright 2003 Pearson Education Canada Inc.
liability
What What audit proceduresaudit procedures will address will address the the completeness of payablescompleteness of payables??
- enquire of management regarding completeness of payables- perform analytical procedures on payables- perform a search for unrecorded liabilities
![Page 39: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/39.jpg)
16 - 39Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities
how?
![Page 40: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/40.jpg)
16 - 40Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities- examine the unpaid vendors’ invoice file after the balance sheet date. Examine those invoices and trace them to related receiving reports. Determine whether the transactions are recorded in the appropriate period.
January
![Page 41: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/41.jpg)
16 - 41Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities- examine vendors’ invoices/statements that were recorded in the last few days of the year and the first few days of the subsequent year. Trace these invoices to the related receiving reports. Determine whether the transaction are recorded in the appropriate period.
December January
![Page 42: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/42.jpg)
16 - 42Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities
- examine cash disbursements for several days subsequent to year-end to determine if the related liability was recorded at year- end. Trace these cash disbursements to receiving reports.
January
![Page 43: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/43.jpg)
16 - 43Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities
December January
- examine receiving reports for several days before and after year-end and trace to vendors’ invoices. Determine when title passed, and trace to the a/p master file.
![Page 44: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/44.jpg)
16 - 44Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities- consider: unpaid taxes existing contracts minutes of board meetings legal and other professional invoices cutoff tests for reciprocal accounts (inventory and capital assets)
![Page 45: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/45.jpg)
16 - 45Copyright 2003 Pearson Education Canada Inc.
Search for Unrecorded LiabilitiesSearch for Unrecorded Liabilities
During the search,auditors will be watchful
for related partytransactions.
![Page 46: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/46.jpg)
16 - 46Copyright 2003 Pearson Education Canada Inc.
What audit procedures will address What audit procedures will address the the accuracyaccuracy of payables? of payables?
![Page 47: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/47.jpg)
16 - 47Copyright 2003 Pearson Education Canada Inc.
What audit procedures will address What audit procedures will address the the accuracyaccuracy of payables? of payables?
- recalculate year-end accruals (interest, wages, CPP, employment insurance, vacation benefits, warranties)
- recalculate amortization of bond premiums and discounts
- confirm a sample of a/p balances
![Page 48: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/48.jpg)
16 - 48Copyright 2003 Pearson Education Canada Inc.
When is When is confirmation of confirmation of payablespayables appropriate? appropriate?
![Page 49: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/49.jpg)
16 - 49Copyright 2003 Pearson Education Canada Inc.
When is When is confirmation of confirmation of payablespayables appropriate? appropriate?
- client has poor internal controls- client’s vendors do not send month- end statements- client is having financial problems (existing a/p may be understated)- client has “problem” vendors that frequently dispute the client debt- client has “critical” vendors upon which the client’s production depends
![Page 50: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/50.jpg)
16 - 50Copyright 2003 Pearson Education Canada Inc.
What are What are less expensiveless expensive alternatives to confirmations if alternatives to confirmations if
the auditor is concerned the auditor is concerned about the about the existenceexistence of a/p? of a/p?
![Page 51: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/51.jpg)
16 - 51Copyright 2003 Pearson Education Canada Inc.
What are What are less expensiveless expensive alternatives to confirmations if alternatives to confirmations if
the auditor is concerned the auditor is concerned about the about the existenceexistence of a/p? of a/p?
- trace year-end vendor a/p balances to evidence of subsequent payment (cash disbursements, cancelled cheques)- trace year-end vendor a/p balances to vendors statements/invoices
![Page 52: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/52.jpg)
16 - 52Copyright 2003 Pearson Education Canada Inc.
a/p audit exercisesa/p audit exercisesThe auditor suspects that unauthorizedpurchases have occurred.
![Page 53: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/53.jpg)
16 - 53Copyright 2003 Pearson Education Canada Inc.
a/p audit exercisesa/p audit exercisesThe auditor suspects that unauthorizedpurchases have occurred.
Trace a sample of cancelled cheques topurchase orders, receiving reports, andrequisitions.
![Page 54: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/54.jpg)
16 - 54Copyright 2003 Pearson Education Canada Inc.
a/p audit exercisesa/p audit exercises
The auditor suspects unrecorded liabilities of related parties.
![Page 55: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/55.jpg)
16 - 55Copyright 2003 Pearson Education Canada Inc.
a/p audit exercisesa/p audit exercisesThe auditor suspects unrecorded
liabilities of related parties.- examine all receiving reports for several days before and after year-end for names of related parties. If any are discovered, trace to a/p master file.- examine cash disbursements for the first several days after year-end for names of related parties. If any are discovered, trace to a/p master file.
![Page 56: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/56.jpg)
16 - 56Copyright 2003 Pearson Education Canada Inc.
SALES INVOICE 4527 Date: Big Pencil Co. Customer: 834 Reynolds Rd. Winnipeg, MB R2V 4E3 Sales Representative: Quantity Description Price
total invoice amount
Est. shipment date: Terms of sale (including discounts and freight costs): Carrier:
Credit authorization:
The auditor suspects double pay-ment of some vendor invoices.
a/p audit a/p audit exercisesexercises
Ace Company 235
Ace Company 236
Ace Company
CANADIAN BANK
CANADIAN BANK
![Page 57: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/57.jpg)
16 - 57Copyright 2003 Pearson Education Canada Inc.
The auditor suspects double paymentof some vendor invoices.Scan cashdisbursementsfor vendors thathave received multiple pay-ments for thesame amount.Trace these topurchase ordersand receivingreports.
SALES INVOICE 4527 Date: Big Pencil Co. Customer: 834 Reynolds Rd. Winnipeg, MB R2V 4E3 Sales Representative: Quantity Description Price
total invoice amount
Est. shipment date: Terms of sale (including discounts and freight costs): Carrier:
Credit authorization:
Ace Company 235
Ace Company
Ace Company 236
CANADIAN BANK
CANADIAN BANK
![Page 58: 16 - 1 Copyright 2003 Pearson Education Canada Inc. CHAPTER 16 Audit of the Acquisition and Payment Cycle.](https://reader030.fdocuments.in/reader030/viewer/2022032723/56649cf75503460f949c7aa3/html5/thumbnails/58.jpg)
16 - 58Copyright 2003 Pearson Education Canada Inc.
SALES INVOICE 4527 Date: Big Pencil Co. Customer: 834 Reynolds Rd. Winnipeg, MB R2V 4E3 Sales Representative: Quantity Description Price
total invoice amount
Est. shipment date: Terms of sale (including discounts and freight costs): Carrier:
Credit authorization:
Ace Company
The auditor suspects double paymentof some vendor invoices.
Additionally,look forpaymentindicationon the vendorinvoices.
Ace Company 235
Ace Company 236
PAID 3/29 ch #235
CANADIAN BANK
CANADIAN BANK