What are the five primary activities involved in the acquisition and payment cycle?
Presentation on theme: "Chapter 11 Audit of Acquisition and Payment Cycle and Inventory"— Presentation transcript: 1 Chapter 11 Audit of Acquisition and Payment Cycle and Inventory Show
2 Audit Opinion Formulation Process 3 LO 1 Acquisition and Payment
Cycle 4 Automated Purchasing System
5 LO 2 Integrated Audit of the Acquisition and Payment Cycle
6 Integrated Audit of the Acquisition and Payment Cycle 7 LO 3 Risks Related
to the Acquisition and Payment Cycle 8 Risks Related to the Acquisition and Payment Cycle 9 Risks Related to the Acquisition and Payment Cycle (continued)
10 LO 4 Preliminary Analytical Procedures for Possible Misstatements
11 LO 5 Linking Internal Controls and Financial Statement Assertions 12 Linking Internal
Controls and Financial Statement Assertions (continued)
13 Linking Internal Controls and Financial Statement Assertions (continued)
14 Linking Internal Controls and Financial Statement Assertions (continued) 15 Linking Internal Controls and Financial Statement
Assertions (continued) 16 Design, Perform and Analyze Results of Tests of
Controls 17 LO 6 Substantive Tests of Accounts Payable 18 Analytical Review of Related Expense
Accounts 19 Testing Subsequent
Disbursements
20 Reconciling Vendor Statements or Confirmations with Payables 21 Substantive Tests of Expense Accounts 22 Substantive Tests of Expense Accounts (continued) 23 LO 7 Complexities Related to Inventory and Cost of Goods Sold
24 LO 8 Risks and Controls Related to Inventory and Cost of Goods Sold 25 LO 9 Internal Controls for Inventory 26 LO 10 Substantive Tests of Inventory and Cost of Goods Sold 27 Procedures for Observing a Client's Physical Inventory 28 Procedures for Observing a Client's Physical Inventory
29 What does the auditor do after the inventory count? 30 Counting Inventory Before or After Year-end
31 Completeness Inventory cutoff tests:
32 Allowance for Returns In most situations, expected returns of inventory are not material However, some companies provide return guarantees and expect significant returns
Management can use previous experience, updated for current economic conditions, to develop estimates of returns 33 Rights
Most of the work regarding ownership of inventory is performed during the auditor's testing of purchases Auditor should also review long-term contracts to determine obligations Inquiry should be made about inventory on consignment
34 Inventory Valuation Most complex assertion related to inventory because of the: Volume of transactions Diversity of products
Variety of costing methods Difficulty in estimating net realizable value of products 35 Inventory Valuation (continued) 36 Appropriate Disclosure 37 Cost of Goods Sold Audit of cost of goods sold can be direct tied to the audit of inventory If beginning and ending inventories have been verified and
acquisitions have been tested, cost of goods sold can be direct calculated Auditor should also apply analytics to cost of goods sold to see if there are any significant variations - either overall or by product line What are the classes of transactions in the acquisition and payment cycles?6 Classes of Transactions and Accounts
Acquisitions: Inventory Property, plant, and equipment Prepaid expenses Leasehold improvements Accounts payable Manufacturing expenses Selling and administrative expenses The request for goods and services by the client's personnel is the starting point for the cycle.
What is the acquisition cycle?The life cycle process takes the program through research, development, production, deployment, support, upgrade, and finally, demilitarization and disposal.
Which of the following steps in the acquisition and payment process typically happens first?The acquisition/payment process begins by: Requesting goods and services based on monitored need.
What is acquisition cycle in auditing?The main activities of the acquisition cycle is: 1) purchase requisition, 2) authorized acquisition of materials, 3) receive of materials, 4) transaction recording in accounting, 5) bill payment authorization, 6) cash disbursement.
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