Auditing the Purchasing Cycle | Auditing Course | CPA Exam

In this video, we explain auditing the purchasing cycle.
Start your free trial: farhatlectures...
Auditing the Purchasing Cycle
The purchasing cycle involves acquiring goods and services essential for business operations. Auditing this cycle ensures that purchases are authorized, recorded accurately, and classified correctly, preventing fraud, misstatements, or financial manipulation.
Objectives of Auditing the Purchasing Cycle
Existence & Occurrence - Verify that recorded purchases represent actual transactions.
Completeness - Ensure all valid purchase transactions are recorded.
Accuracy - Confirm amounts and calculations are correct.
Cutoff - Verify purchases are recorded in the correct accounting period.
Classification - Ensure proper allocation of purchases to the correct accounts.
Authorization - Assess whether purchases are properly approved before processing.
Key Audit Procedures
1. Understanding Internal Controls
Evaluate segregation of duties (e.g., purchasing, receiving, and accounts payable).
Review purchase approval procedures and vendor selection policies.
Assess controls over invoice verification and payment processing.
2. Substantive Testing
A. Inspection of Purchase Orders & Invoices
Review purchase orders to ensure proper authorization.
Examine invoices for correct pricing, quantity, and vendor details.
B. Confirmations with Vendors
Obtain external confirmations from suppliers to verify balances.
Check vendor statements against recorded liabilities.
C. Cutoff Testing
Compare receiving reports and supplier invoices issued near year-end.
Ensure liabilities are recorded in the correct period.
D. Search for Unrecorded Liabilities
Review subsequent cash disbursements for missing liabilities.
Examine unmatched receiving reports for unrecorded payables.
E. Analytical Procedures
Compare purchase trends with prior periods.
Analyze expense-to-revenue ratios for anomalies.
Common Risks & Errors
Unrecorded Purchases - Purchases not recorded in the correct period.
Duplicate Payments - Paying the same invoice multiple times due to poor controls.
Unauthorized Transactions - Purchases made without approval.
Fictitious Vendors - Fraudulent transactions involving non-existent suppliers.
Misclassification - Incorrect allocation of purchases affecting financial reporting.
Conclusion
Auditing the purchasing cycle ensures financial accuracy and prevents fraud. By examining internal controls, invoices, vendor confirmations, and cutoff procedures, auditors verify that purchases are authorized, recorded correctly, and classified appropriately, ensuring financial statement reliability.
#accountingstudy #accountingexam #accountingtutorial

[@F.r.i.e.n.d.s.h.i.p__]

Sir your lectures are super helpful and easy to understand.. Is there any video playlist for ASC 740??