ACQUISITION AND EXPENDITURE CYCLE

1
ACQUISITION AND EXPENDITURE CYCLE

• Chapter 9

2
Understand the Cycle
3
Activities and Documents

• Purchase requisition
• Purchase order
• Receiving report shipping documents
• Vendor invoice
• Vendor statements
• Disbursement (check)
• Accounting records

4
Accounts

• Purchases
• Returns and allowances
• Discounts
• Accounts payable
• Cash
• Inventory
• Ending
• Cost of goods sold

5
Assess Risk

• Modify audit program as appropriate.

6
Understand Internal Controls

• Test the specific internal controls which will be
  relied upon.

7
Initiating a Purchase

• Requisition shows that an item was wanted.
• Approval is necessary
• Purchase order is the document sent outside.
• Approval required!
• Vendor selected (preapproved, bid, etc.)
• Documentation sent to accounts payable

8
Receiving activities

• Receiving department
• receives and inspects goods
• forwards inventory to proper location
• prepares receiving report
• forwards documentation to accounts payable

9
Accounts Payable

• Collects documentation, completeness
• Compares for agreement, accuracy
• Prepares payments
• Records payments

10
Treasury

• Signs and mails the checks
• all disbursements need to be approved
• checks sent directly to payee
• Reconciliations

11
Inventory

• Significant asset
• Subject to theft
• High error rate
• Should be counted at or near year end
• internal controls
• volume of inventory

12
Assess Risk

• Modify audit program as appropriate.

13
Test Recorded Dollar Balances

• Determine whether the representations made by the
  client are materially correct.

14
Observation of Inventory

• Required under GAAS
• Example
• tag system
• test counts
• observe counters
• value inventory
• compare against client records
• Price inventory
• LIFO, FIFO, Avg Cost

15
Other Accounts

• Purchases
• Returns
• Allowances
• Cost of Goods Sold
• Accounts Payable
• Cash (disbursements)

16
Draw Conclusions

• Review work performed.
• Documentation (working papers)
• Levels of review.
• Evaluate types and causes of misstatements.
• Prepare
• Adjusting journal entries (AJEs).
• Reclassification journal entries (RJEs).
• Present adjustments to the client.