According to Arens, Elder and Beasley (2006), “is considered as the third major transaction cycle.” The three major transactions in the acquisition and payment cycle include: 1. Acquisition of goods and services
2. Cash Disbursements
3. Purchase returns and allowances and purchase discounts Components such as, acquisition of raw materials, equipment, supplies, utilities, repairs and maintenance, and research and development plays a major role in the acquisition and payment cycle. The major accounts that are associated with the acquisition and payment cycle are, accounts payable, inventory, and expenses. The methodology for designing tests for phase 1 – 3 of the process includes; identification of client risks affecting other accounts, setting tolerable misstatements, assessing inherent risk for accounts, and assessing control risks for accounts. Business functions included in the acquisition and payment cycle includes: processing purchase orders, receiving goods and services, recognizing the liability, and processing and recording cash disbursements. The incorporation of e-commerce affects the acquisition and payment cycle in many ways. Information about the products and services that Apollo Shoes offers is readily accessible on the internet. This could be a hindrance for Apollo Shoes, since the company competitors can mimic the company’s products and services. For communication purposes, Apollo Shoes use the company’s intranet to communicate information securely. This action prevents a potential leak of information to the public and competitors. Below is a detailed illustration of the audit of the acquisition and payment cycle for Apollo Shoes. TRANSACTION-RELATED AUDIT OBJECTIVE| KEY INTERNAL CONTROL| COMMON TEST OF CONTROL| COMMON SUBSTANTIVE TESTS OF TRANSACTIONS| | | | |
1. Recorded acquisitions are for goods and services received, consistent with the best interests of the client.| | | | 2....