AUDITING AND ASSURANCE I: Audit of Purchase Cycle

INTRODUCTION

INTRODUCTION

In order to develop audit objectives, the auditing firm must:

Divide financial statements into cycles;

a. Sales and collections cycle

b. Acquisition and payment cycle

c. Payroll cycle

d. Inventory cycle

e. Capital acquisition and repayment cycle.

Auditors typically divide the financial statements into components or segments in order to make the audit more manageable, and auditors will be able to work more effectively. A component can be a financial statement account or a business (transaction cycle) process. This approach allows the auditor to gather evidence by examining the processing of related transactions through the accounting system from their origin to their ultimate disposition in the accounting journals and ledgers. Thus, the auditor can examine an accounting transaction from the time it is initiated by the entity until its final recording in the financial statement accounts.

The overall objective in the audit of the acquisition and payment cycle is to evaluate whether the accounts affected by the acquisitions of goods and services and the cash disbursements for those acquisitions are fairly presented in accordance with generally accepted accounting principles.

The purchasing cycle consists of the acquisition of goods and services in exchange for cash or promises to pay cash. The audit of accounts in the purchasing cycle (e.g., purchases of merchandise or raw materials, various expenses, accounts payable, and cash) usually consists of a combination of substantive tests and tests of controls to support an assessment of control risk that is below the maximum or at low.

AUDITING AND ASSURANCE I

Group Members:

OBJECTIVE OF CONDUCTING AN AUDIT OF FINANCIAL STATEMENTS

INTRODUCTION

Audit of Purchase Cycle

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