Slide 1
The 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 accounting standards.
There are three classes of transactions included in the cycle: 1. Acquisitions of goods and services 2. Cash disbursements 3. Purchase returns and allowances and purchase discounts

Slide 2
And all three transactions are either debited or credited to accounts payable. Ten typical accounts involved in the acquisition and payment cycle are shown by T accounts.

Slide 3
For simplicity, we show only the control accounts for the three major categories of expenses used by most companies. For each control account, examples of the subsidiary expense accounts are also given.

Slide 4
There are four business functions that occur in every business and the first three functions are for recording the acquisition of goods and services on account, and the fourth function is for recording cash disbursements. Processing purchase orders includes documents of purchase requisition which is used to request goods and services by an authorized employee. Such as, materials by production staff or the storeroom supervisor. And second document is purchase order. Receiving goods and services include documents of receiving report which is a paper or electronic document prepared at the time goods are received. Recognizing the liability include documents of vendor’s invoice, Debit Memo, Voucher, Acquisitions transaction file is a computer generated file that includes all acquisition transactions processed by the accounting system period, such as a day, week, or month, Acquisitions journal or listing it includes the vendor name, date amount and account classification, Accounts payable master file records acquisitions, cash disbursements and acquisition returns and allowances transactions for each vendor, Accounts payable trial balance, and Vender’s statement. Processing and recording cash disbursements includes documents of check, cash disbursements transaction file which is similar to acquisition transaction file, and cash disbursements journal and listing.

Slide 5
Methodology for Designing Tests of Controls. The first part is Understand Internal Control - The auditor gains an understanding of internal control for the acquisition and payment cycle by studying the client’s flowcharts, preparing internal control questionnaires, and performing walk-through tests for acquisitions and cash disbursements.

Slide 6
Second part is Assess Planned Control Risk. There are authorizations of purchases, separation of the custody of the received goods from other functions, timely recording and independent review of transactions, and authorization of payment to vendors.

Slide 7
Next key is Determine extent of Testing Controls in which the auditor identifies the key Internal Controls and weaknesses and assesses control risk. And the auditor decides whether substantive tests will be reduced sufficiently to justify the cost of performing tests of controls.