Lecture7 - Page 1 of 5 Week 7: Acquisition and Payment...

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Week 7: Acquisition and Payment Cycle and Sampling - Lecture Acquisition, Payment Cycle, and Inventory Introduction | Check Fraud | The Accounts Payable Cycle | The Inventory Cycle | Completing the Audit | Practice Exercise We are entering our final week of lectures together and the end of the auditing cycle. We start this lecture with a review of the concepts of check fraud. The accounts payable cycle is the prelude to the client acquiring inventory. We also focus on the final work of the audit to arrive at our audit report. The subsequent events and final analysis stage is where the audit can determine if the financials taken as a whole fairly represent the financial condition of the client's business. The tests of acquisition and cash disbursement transactions have two purposes: z To determine whether related internal accounting controls are functioning (tests of controls). z To determine whether the transactions actually contain any monetary misstatements (substantive). Cash disbursements are an area highly susceptible to fraudulent schemes, including: z Employees causing their employers to pay for fictitious invoices for goods and services. z Employees making claims for reimbursements of fictitious or inflated business expenses. z Employees stealing the employer's funds by forging or altering a check on one of the company's bank accounts, or stealing a check the company legitimately issued to another payee. z Employees causing their employers to issue payments to them by making false claims for compensation. z Employees stealing their employer's funds by making fraudulent wire transfers out of the company's bank accounts. z Employees making false entries on a cash register to conceal the fraudulent removal of cash. Auditors do need to be aware of such schemes to properly prepare their audit of the acquisition and payment cycle. Print This Page Introduction Check Fraud Videos The following two videos show a reformed check fraud criminal discussing techniques criminals use, and what businesses can do to stop them. Page 1 of 5 8/23/2011 http://vizedhtmlcontent.next.ecollege.com/(NEXT(ed3d138cfc))/Main/CourseMode/Vized. ..
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Accounts payable is an audit area that is concerned with the specific issues of unrecorded liabilities and the proper recording of purchases. In the search for unrecorded liabilities, the auditor reviews the supporting documentation for significant cash disbursements after year-end to the last day of the auditor's fieldwork to determine whether they are disbursements for transactions that occurred in the year of audit. If it is, then the expense should be accrued and added to accounts payable. Also, the auditor should review all significant unpaid invoices to determine whether any should be accrued as of the end of the year. If this is the case, the invoices should also be included in accounts payable. Regarding the proper recording of purchases, for all significant purchases in the purchases journal for a period
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This note was uploaded on 08/27/2011 for the course AC555 AC555 taught by Professor Tarbet during the Spring '10 term at Keller Graduate School of Management.

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Lecture7 - Page 1 of 5 Week 7: Acquisition and Payment...

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