Professional Documents
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Auditing The Acquisition Process
Auditing The Acquisition Process
Auditing The Acquisition Process
Accounts
Payable and
Other Liabilities
McGraw-Hill/Irwin
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liabilities
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2.
3.
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Primary concern
Possibility
of understatement or omission
of liabilities
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Acquisition Cycle--Documents
Purchase
order
Receiving report
Vendors invoice
Vendors statement
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Audit Documentation
Working
papers
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against misstatements
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of misstatements
Risks
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Completeness
Existence
Other Evidence
External evidence
Internal evidence
Available held by client (i.e.., (i.e., sales invoices,
vendors invoices
receiving reports)
and statements)
Confirmation
Generally
Required?
No
Yes
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Potential Sources of
Unrecorded A/P
Unmatched
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Materiality
Effect on net income
Need to consider cumulative effect on the financial
statements
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Unclaimed wages
Subject
to misappropriation
Concerned with adequacy of internal
control
Analyze
Customers Deposits
Deposits
on returnable containers or to
guarantee payment of bills
Review procedures followed in accepting
and returning deposits
Verify list of individual deposits and
compare to general ledger account
Generally do not confirm
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Accrued Liabilities (1 of 3)
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Accrued Liabilities (2 of 3)
Basic audit steps
1. Examine any contracts or other documents on hand that provide the
basis for the accrual.
2. Appraise the accuracy of the detailed accounting records maintained
for this category of liability.
3. Identify and evaluate the reasonableness of the assumptions made
that underlie the computation of the liability.
4. Test the computations made by the client in setting up the accrual.
5. Determine that accrued liabilities have been treated consistently at
the beginning and end of the period.
6. Consider the need for accrual of other accrued liabilities not
presently considered (that is, test completeness).
7. For significant estimates, perform a retrospective analysis of the
prior years estimates for evidence of management bias.
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Accrued Liabilities (3 of 3)
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Presentation
Current
liability
Accrued expenses
Deferred income tax for next year
Deferred credits for rent
Deposits on contracts
Long-term
liability
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Time of Examination
Most
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