Question

SECTION 2-CASE STUDY: Audit of Purchase and Payments Cycle (15 Marks) Required: Explain the Purchase and Payments cycle and discuss the typical audit procedures employed in this area of audit. Note: Break up your response to this part in to sub-sections with appropriate sub-headings making it clear the theme that you are discussing Marks will be allocated to this aspect of presentation (between 300 -500 words) (15 marks)

Answer 1

Purchse and Payment Cycle In Purchase Payment cycle 3 Question arise- 1st Question- What Does puchase and payment Cycle primarily concerned with? Ans The ordering, Receiving and Payment of goods. 2nd Question- Why is the Purchase Payment cycle consider high risk cycle? Ans There is cash Involvement. Cash as per ISA standards carries an inherentfraud risk. 3rd Question- Name of functions of Purchase and payment cycle? Ans 1 The ordering of goods and services. 2 The receiving of goods and services. 3 The recording of purchase and account payable. 4 The payment of goods received Discussion of Audit Procedure- Under purchase and payment cycle Auditor should understand the Internal Control, and design and perform tests of control and substantive tests of transections for the acquisition and payment cycle. Determine Extent of Testing of Controls * * The Auditor identifies the key internal controls and weaknesses and assesses control risk. The Auditor performs tests control to obtain evidence that controls are operating effectively. Controls and substantive Tests of Transections for acquisitions 1- confirm recorded acquisitionare for goods and services are received(occurrence). 2- Existing acqusitions are recorded(Completeness) 3- Acqusitions are recorded accurately. 4- Acqusitions are recorded on the correct dates(Timing). Analytical procedure 1- Compare the acqusition related expense account balance with prior years. 2-Compare individual accounts payable with previous years 3-Calculate ratios, such as purchase divided by accounts payable, and accounts payable divided by current liabilities.

Audit of Payament 1- Payment are cross check by Vendor. 2- Get the confirmation from Creditor of Balance of Account at the specific time period. 3-Payment are also verified with the balnance of cash.