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Lecture Auditing & assurance services (5th) - Chapter 8: Acquisition and expenditure cycle

The learning objectives for this chapter include: Identify significant inherent risks in the acquisition and expenditure cycle; describe the acquisition and expenditure cycle, including typical source documents and controls; give examples of tests of controls over purchases of inventory and services. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 08 Acquisition and Expenditure Cycle Learning Objectives Identify significant inherent risks in the acquisition and expenditure cycle. Describe the acquisition and expenditure cycle, including typical source documents and controls. Give examples of tests of controls over purchases of inventory and services. Explain the importance of the completeness assertion for the audit of accounts payable liabilities, and list some procedures for a search for unrecorded liabilities. Discuss audit procedures for other accounts affected by the acquisition and expenditure cycle. Specify some ways fraud can be found in the acquisition and expenditure cycle. Describe some common errors and frauds in the acquisition and expenditure cycle, and design some audit and investigation procedures for detecting them. Describe the payroll cycle, including typical source documents and controls 8- Inherent Risks Unrecorded liabilities Noncancelable purchase agreements Capitalizing expenses 8- Acquisition and Expenditure Cycle: Typical Activities Purchase Goods and Services Department requesting purchase of item(s) prepares a PURCHASE REQUISITION Bidding may be required on high dollar purchases Purchasing prepares a PURCHASE ORDER approved by the appropriate person (usually dependent on dollar amount of PO) May be done electronically by EDI Receiving the Goods or Services After vendor approval, goods are received by company and evidenced by preparing a RECEIVING REPORT Recording the Asset or Expense and Related Liability Vendor bills company for goods using a VENDOR'S INVOICE Paying the invoice through the cash disbursement process 8- Control Procedures Information processing controls Compare PO number on BOL with company PO Compare quantities against receiving report and purchase order Compare prices against quoted price or catalog listing Mathematically verify vendor's . | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 08 Acquisition and Expenditure Cycle Learning Objectives Identify significant inherent risks in the acquisition and expenditure cycle. Describe the acquisition and expenditure cycle, including typical source documents and controls. Give examples of tests of controls over purchases of inventory and services. Explain the importance of the completeness assertion for the audit of accounts payable liabilities, and list some procedures for a search for unrecorded liabilities. Discuss audit procedures for other accounts affected by the acquisition and expenditure cycle. Specify some ways fraud can be found in the acquisition and expenditure cycle. Describe some common errors and frauds in the acquisition and expenditure cycle, and design some audit and investigation procedures for detecting them. Describe the payroll cycle, including typical source documents and controls 8- Inherent .