Auditing Ritter 审计学基于的环境变化的概念ch11.pptVIP

Chapter 11 Audit of Acquisition Cycle and Inventory Overview of Acquisition Cycle The acquisition cycle covers the purchase, receipt, payment, and accounting for goods and services Major accounts include inventory, accounts payable, and expenses Main phases in the acquisition and payment process: Authorized requisition Authorized purchase Receipt of goods and services Approval for payment Cash disbursement Discuss Risk and Business Analysis Acquisition cycle deals with receipt of all goods and services Misstatements may occur just because of the volume of transactions It is also an area where fraud is likely to take place. For example, Employee theft of inventory causing inventory on the books to be overstated Employees setting up fictitious vendors and paying themselves for goods never received by the company Executives abusing travel and entertainment expenses for personal use Capitalizing expenses as assets to inflate earnings Overestimating restructuring reserves at the time of acquisition so expenses could be reduced in future periods What are the red flags of the acquisition and payment cycle? There are a number of red flags unique to the acquisition and payment cycle. These include: Inventory growing at a rate greater than sales Expenses significantly above or below industry norms Capital assets growing faster than the business and for which there are not strategic plans Significant reduction of reserves Expense accounts that have significant credit entries Travel and entertainment expense accounts that do not have documentation Inadequate follow-up to auditor recommendations on needed controls What analytical analysis can be done for misstatements? Analytical procedures to identify potential misstatements: Calculate and analyze dollar and percentage change in inventory, cost of goods sold, and expense accounts Compute and analyze ratios like inventory turnover and number of days sales in inventory Prepare common sized income statement to identify cost of