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Audit Procedures & Objectives: acquisition & payment cycle

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12-56 (Audit Procedures and Objectives) The following audit procedures are found in audit programs addressing the acquisition and payment cycle.

Required

For each audit procedure described:
a. Identify the objective of the procedure or the audit assertion being tested.
b. Classify the procedure as primarily a substantive test, a test of controls, or both.

Audit Procedures
1. The auditor examines payments to vendors following year end and then reviews any open accounts payable files.

2. The auditor reviews computer-center records on changes to passwords and the client's procedures to monitor unusual amounts of accesses by password type. The auditor makes inquiries of purchasing agents about how often passwords are changed, and whether assistants are allowed to access computer files in their absence in order to efficiently handle inquiries or process standing orders.

3. The auditor reviews a report of all accounts payable items that were not matched by the automated matching system, but had been paid upon authorization of the accounts payable department. A sample of selected items is taken and traced to the vendor payment and supporting documentation.

4. The auditor uses software to prepare a report of all debits to Accounts Payable other than payments to vendors. A sample of the debits is selected and examined for support.

5. The auditor uses software to access all recorded receipts of merchandise that have not been matched to an open purchase order.

6. The client prepares a report from a database showing inventory write-downs by product line and by purchasing agent. The auditor reviews the report and analyzes the data in relation to sales volume by product.

7. The auditor creates a spreadsheet showing the amount of scrap generated monthly, by product line.

8. The auditor downloads client data to create a report showing monthly sales and inventory levels, by product line.

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Solution Preview

The table attached below is easier to read than what is included in the response.

The acquisition and payment cycle include inventory, expense accounts and accounts payable. For many businesses, these areas represent much of the dollar amounts and the volume of transactions within a company. All are very likely to contain misstatements of information either due to errors in reporting, recording or receiving, or thievery and fraud.

a. The audit ...

Solution Summary

The 263 word solution answers questions a. and b. and then provides a table to classify the procedures as requested in the problem.

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See Also This Related BrainMass Solution

Audit objectives, misstatements: disbursement payable cycle

The following statements are typically found in a questionnaires used by auditors to obtain an understanding of internal control in the acquisition and payment cycle. In using the questionnaire for a client, a "yes" response to a question indicates a possible internal control, whereas a "no" indicates a potential deficiency.

a. For each of the questions, state the transaction-related audit objective(s) being fulfilled if the control is in effect.
b. For each internal control, list a test of control to test its effectiveness.
c. For each of the questions, identify the nature of the potential financial misstatement(s) if the control is not in effect.
d. For each of the potential misstatements in part c, list a substantive audit procedure that can be used to determine whether a material misstatement exists.

1. Is the purchasing function performed by personnel who are independent of the receiving and shipping functions and the payables and disbursing functions?
2. Are all vendors' invoices routed directly to accounting from the mailroom?
3. Are all receiving reports renumbered and the numerical sequence checked by a person independent of check preparation?
4. Are all extensions, footing, discounts, and freight terms on vendors' invoices checked for accuracy?
5. Does a responsible employee review and approve the invoice account distribution before the transaction is entered in the computer?
6. Are checks automatically posted in the cash disbursements journal as they are prepared?
7. AR3e all supporting documents properly cancelled at the time the checks are signed?
8. Is the custody of checks after signature and before mailing handled by an employee independent of all payable, disbursing, cash, and general ledger functions?

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