Audit of Purchasing process.docx - Nature of Purchasing process The acquisition of goods and services includes the purchase of raw materials supplies

Audit of Purchasing process.docx - Nature of Purchasing...

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Nature of Purchasing process: The acquisition of goods and services includes the purchase of raw materials, supplies, manufacturing equipment, furniture, and fixtures and payment for repairs and maintenance, utilities, and professional services. This process does not include hiring and paying employees or the internal allocation of costs within an entity. Many transactions processed through a typical purchasing process involve the recognition of an expense and its corresponding liability. As a result, the auditor should understand the basic underlying concepts of expense and liability recognition in order to audit the purchasing process: - Expenses are outflows or other using up of assets or incurrences of from delivering or producing goods, rendering services, or carrying out other activities. They can be divided into 3 catagories: + Certain expenses can be matched directly with specific transactions or events and are recognized upon recognition of revenue + Many expenses are recognized during the period in which cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter + Some expenses are allocated by systematic and rational procedures to the periods during which the related assets are expected to provide benefits. EXP: epreciation of plant and equipment - Liabilities are probable future sacrifices of economic benefits arising from present
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