List the five primary activities involved in the acquisition and payment cycle
All disclosed events, transactions, and other matters relating to accounts payable have occurred and pertain to the entity are properly disclosed and presented in the financial statements. Show 2.2 Internal controls and test of controls 2.2.1 Internal controls for purchase and payment cycle is mainly concerned about the following aspects: (a) Classes of purchase transactions Assertions Internal Control Procedures Test of control 1. Occurrence
2. Completeness
3. Accuracy
4. Cut-off
5. Classification
(b) Classes of cash payment transactions Assertions Internal Control Procedures Tests of controls 1. Occurrence
2. Completeness
3. Accuracy
4. Cut-off
5. Classification
(c) Accounts payable balances Assertions Internal Control Procedures Tests of controls 1. Existence
2. Rights and obligations
3. Completeness
4. Valuation and allocation
5. Presentation and disclosures
3. Substantive Procedures for Purchases and Payments Transactions 3.1 Analytical procedures 3.1.1 Examples of the analytical procedures for purchases and cash payments(a) Compare purchases expenses with budgeted amount. 3.2 Substantive procedures – purchases transactions 3.2.1 Examples of substantive tests for purchases transactions are as follows: Assertions Substantive procedures 1. Occurrence
2. Completeness
3. Accuracy
4. Cut-off
5. Classification
3.3 Substantive procedures – payments transactions 3.3.1 Examples of substantive tests for payments transactions are as follows: Assertions Substantive procedures 1. Occurrence
2. Completeness
3. Accuracy
4. Timing
5. Classification
4. Tests of Details of Accounts Payable 4.1 Analytical procedures 4.1.1 Examples of the analytical procedures for accounts payable(a) Scrutinize list of accounts payable for unusual items. 4.2 Tests of details of accounts payable balances Audit Objectives Substantive procedures 1. Existence
2. Rights and obligations
3. Completeness
4. Valuation and allocation
5. Presentation and disclosures
4.3 Out-of-liability tests for accounts payable 4.3.1 The following table shows the audit procedures to uncover unrecorded accounts payable in the financial statements. Procedures Purposes Examine underlying documentation for payments subsequent to year end date
Examine underlying documentation for invoices not paid within several weeks after year-end.
Trace goods receiving notes issued before and after year-end to related vendors’ invoices and accounting records.
Trace vendors’ statements to the balances on the creditors’ list.
Send confirmation to trade creditor with which client has done business during the period under audit.
4.4 Accounts payables’ circularization (發函詢證) 4.4.1 The samples of balances selected for sending confirmation might include: 4.5 Cut-off tests 4.5.1 These test are intended to determine whether transactions recorded a few days before and after the balance sheet date are included in the correct period. Items Purposes In relation to physical observation of stocktaking
If physical count of stock is carried out before year end date
Goods in transit
Question 1 You have worked on this audit assignment for a few years and this year you are the senior in charge of the audit. A newly recruited accounting graduate who has no practical experience is assigned as your assistant. You have already conducted tests of controls for the transaction cycles, and control risks are assessed as medium for these cycles. You decide to let the assistant carry out some substantive procedures for the accounts payable section. Required: (a) What are the analytical procedures for accounts payable? (3 marks) 5. Relative Reliability of Invoices, Statements and Confirmation 5.1 When assessing whether sufficient appropriate audit evidence has been collected for verifying accounts payable, it is essential that the auditor understand the relative reliability of the primary types of evidence including suppliers’ invoices, suppliers’ statements, and creditors’ confirmation. 5.3 Determinants of reliability of audit evidence Appendix I – Purchases and Payment Cycle Flowchart Additional Examination Style Questions Question 2 GRN No. Date of GRN Date of Supplier’s invoice Invoice amount Term of invoice Date of shipment Year 2007 $ (Note) 882 29 Dec. 3 Jan 2008 1,000,000 I 18 Dec 2007 883 29 Dec. 27 Dec 2007 1,200,000 II 27 Dec 2007 884 30 Dec. 29 Dec 2007 1,000,000 I 29 Dec 2007 885 31 Dec. 31 Dec 2007 2,000,000 I 30 Dec 2007 886 31 Dec. 8 Jan 2008 1,500,000 II 28 Dec 2007 Year 2008 887 2 January 8 Jan 2008 1,200,000 I 28 Dec 2007 888 2 January 27 Dec 2007 1,000,000 II 31 Dec 2007 889 3 January 27 Dec 2007 1,100,000 I 3 Jan 2008 890 3 January 6 Jan 2008 1,800,000 II 29 Dec 2007 891 4 January 31 Dec 2007 1,700,000 I 3 Jan 2008 Note I: All the suppliers are on FOB origin terms, i.e. the title of goods passes to the buyer when the goods are shipped. Only goods received on or before 31 December 2007 have been taken up as purchases of Quadran Manufacturing Co. Ltd. For the year ended 31 December 2007. Required: (a) Why do the auditors have to obtain the number of the last GRN on or before the year-end, and why do they have to obtain the number of the first GRN after the year-end? When should this be performed? (3 marks) (c) For cut-off error identified in (b), prepare the necessary journal. Question 3 Policies on raising purchase orders
Procedures on placing purchase orders
Observations during the course of audit
Required: Identify TEN weaknesses and make recommendations for improvement. Source: https://hkiaatevening.yolasite.com/resources/PBEAuditNotes/Ch10-PurchaseCycle.doc Web site to visit: https://hkiaatevening.yolasite.com/ Author of the text: indicated on the source document of the above text If you are the author of the text above and you not agree to share your knowledge for teaching, research, scholarship (for fair use as indicated in the United States copyrigh low) please send us an e-mail and we will remove your text quickly. Fair use is a limitation and exception to the exclusive right granted by copyright law to the author of a creative work. In United States copyright law, fair use is a doctrine that permits limited use of copyrighted material without acquiring permission from the rights holders. Examples of fair use include commentary, search engines, criticism, news reporting, research, teaching, library archiving and scholarship. It provides for the legal, unlicensed citation or incorporation of copyrighted material in another author's work under a four-factor balancing test. (source: http://en.wikipedia.org/wiki/Fair_use) The information of medicine and health contained in the site are of a general nature and purpose which is purely informative and for this reason may not replace in any case, the council of a doctor or a qualified entity legally to the profession. The texts are the property of their respective authors and we thank them for giving us the opportunity to share for free to students, teachers and users of the Web their texts will used only for illustrative educational and scientific purposes only. What is acquisition and payment cycle?What is the Acquisition and Payment Cycle? The Acquisition and Payment Cycle (also referred to as the PPP Cycle for Purchases, Payables, and Payments) consists mainly of two classes of transactions. The first class is the acquisition class.
What is acquisition cycle?The management framework for defense systems acquisition is also commonly referred to as the acquisition life cycle. Program managers tailor/streamline this model to the maximum extent possible, consistent with technical risk, to provide new systems to the warfighter as fast as possible.
What is capital acquisition and repayment cycle?Capital acquisition and repayment cycle is the transaction cycle involving the. acquisition of capital resources in the form of interest-bearing debt and owners' equity, and the repayment of the capital.
Which of the following functions does not relate to the acquisitions and payment cycle?Correct answer: Option c) Processing cash disbursements. Explanation: The acquisition and payment cycle comprised of two classes that include the acquisition class and the cash disbursement class.
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