Acquisition Payment Cycle

Acquisition and Payment Cycle According to Arens, Elder and Beasley (2006), “is considered as the third major transaction cycle. ” The three major transactions in the acquisition and payment cycle include: 1. Acquisition of goods and services 2. Cash Disbursements 3. Purchase returns and allowances and purchase discounts Components such as, acquisition of raw materials, equipment, supplies, utilities, repairs and maintenance, and research and development plays a major role in the acquisition and payment cycle.
The major accounts that are associated with the acquisition and payment cycle are, accounts payable, inventory, and expenses. The methodology for designing tests for phase 1 – 3 of the process includes; identification of client risks affecting other accounts, setting tolerable misstatements, assessing inherent risk for accounts, and assessing control risks for accounts. Business functions included in the acquisition and payment cycle includes: processing purchase orders, receiving goods and services, recognizing the liability, and processing and recording cash disbursements.
The incorporation of e-commerce affects the acquisition and payment cycle in many ways. Information about the products and services that Apollo Shoes offers is readily accessible on the internet. This could be a hindrance for Apollo Shoes, since the company competitors can mimic the company’s products and services. For communication purposes, Apollo Shoes use the company’s intranet to communicate information securely. This action prevents a potential leak of information to the public and competitors. Below is a detailed illustration of the audit of the acquisition and payment cycle for Apollo Shoes.

TRANSACTION-RELATED AUDIT OBJECTIVE| KEY INTERNAL CONTROL| COMMON TEST OF CONTROL| COMMON SUBSTANTIVE TESTS OF TRANSACTIONS| | | | | 1. Recorded acquisitions are for goods and services received, consistent with the best interests of the client. | | | | 2. | Purchase requisition, purchase order, receiving report, and vendor’s invoice are attached to the voucher. Acquisitions are approved at the proper level. Computer accepts entry of purchases only from authorized vendors in the vendor master file. Documents are cancelled to prevent their reuse.
Vendor’s invoices, receiving reports, purchase orders, and purchase requisitions are internally verified. | Examine documents in voucher package for existence. Examine indication of approval. Attempt to input transactions with valid and invalid vendors. Examine indication of cancellation. Examine indication of internal verification. | Review the acquisitions journal, general ledger, and accounts payable master file for large or unusual accounts. Examine underlying documents for reasonableness and authenticity. Examine vendor master file for unusual vendors.
Trace inventory acquisitions to inventory master file. Examine fixed assets acquired. | TRANSACTION-RELATED AUDIT OBJECTIVE| KEY INTERNAL CONTROL| COMMON TEST OF CONTROL| COMMON SUBSTANTIVE TESTS OF TRANSACTIONS| | | | | 3. Existing acquisition transactions are recorded. | | | | 4. | Purchase orders are prenumbered and accounted for. Receiving reports are prenumbered and accounted for. Vouchers are prenumbered and accounted for. | Account for a sequence of purchase orders. Account for a sequence of receiving reports. Account for a sequence of vouchers. Trace from a file of receiving reports to the acquisitions journal. Trace from a file of vendors’ invoices to the acquisitions journal. | 5. Recorded acquisition transactions are accurate. | Calculations and amounts are internally verified. Batch totals are compared with computer summary reports. Acquisitions are approved for prices and discounts. | Examine indication of internal verification. Examine file of batch totals for initials of data control clerk; compare totals to summary reports. Examine indication of approval. Compare recorded transactions in the acquisitions journal with the vendor’s invoice, receiving report, and other supporting documentation. Re-compute the clerical accuracy on the vendor’s invoice, including discounts and freight. | TRANSACTION-RELATED AUDIT OBJECTIVE| KEY INTERNAL CONTROL| COMMON TEST OF CONTROL| COMMON SUBSTANTIVE TESTS OF TRANSACTIONS| | | | | 6. Acquisition transactions are properly classified. | | | | 7. | An adequate chart of accounts is used. Account classifications are internally verified. | Examine procedures manual and chart of accounts.
Examine indication of internal verification. | Compare classification with chart of accounts by referring to vendor’s invoices. | 8. Acquisition transactions are recorded on the correct dates. | Procedures require recording transactions as soon as possible after the goods and services have been verified. Dates are internally verified. | Examine procedures manual and observe whether unrecorded vendor’s invoices exist. Examine indication of internal verification. | Compare dates of receiving reports and vendor’s invoices with dates in the acquisitions journal. 9. Acquisition transactions are properly included in the accounts payable and inventory master files and are properly summarized. | Accounts payable master file contents are internally verified. Accounts payable master file or trial balance totals are compared with general ledger balances. | Examine indication of internal verification. Examine initials on general ledger accounts indicating comparison. | Test clerical accuracy by footing the journals and tracing postings to general ledger and accounts payable and inventory master files. | Results of the Audit
Of the preliminary audit of Apollo Shoes acquisition and payment cycle a sample size of 120 invoices were selected. There were missing invoices related to the sample size. The invoices were properly posted to the general ledger sales and accounts receivable control accounts. Each invoice was posted to the appropriate account, no discrepancy was found. The invoices not listed to the proper accounts demonstrated no deviations to other documents, re-calculations, or comparisons. The expected credit approval notation, “No credit approval,” was not found in the related documents.
When a notation of the, “Wrong quantity billed,” was posted, a description of the explanation followed. In addition, the notation of, “CM,” meant the customer contacted Apollo Shoes stating an error and credit memo was issued on the following date. This notation caused all credit memos to generate a debit to a sales return account followed by a credit to accounts receivable. In regards to the other documentation, there were no additional discrepancies to alert management regarding the acquisition and payment cycle. All findings of the 120 sample size were warranted.

Order your essay today and save 30% with the discount code: KIWI20