After you have mastered the material in this chapter, you will be able to: Describe the production cycle, including typical source documents and controls; give examples of tests of controls for auditing the controls over conversion of materials and labor in a production process; identify and describe considerations involved in the observation of physical inventory and tests of inventory pricing and compilation;. | Auditing & Assurance Services, 6e Chapter 8 Acquisition and Expenditure Cycle “Show those numbers to the damn auditors and I'll throw you out the $%*@@ window.”----(Buddy Yates, director of WorldCom, Inc. general accounting, to an employee asking for an explanation of a large accounting discrepancy). 8- 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. 8- Learning Objectives (cont.) 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 Non-cancelable purchase agreements Capitalizing expenses See Exhibit for assertion risks 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 | Auditing & Assurance Services, 6e Chapter 8 Acquisition and Expenditure Cycle “Show those numbers to the damn auditors and I'll throw you out the $%*@@ window.”----(Buddy Yates, director of WorldCom, Inc. general accounting, to an employee asking for an explanation of a large accounting discrepancy). 8- 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. 8- Learning Objectives (cont.) 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 .
