Explain the normal business process in the acquisition and payment cycle. As part of your explanation, state which documents firms would normally use to record activities in that
The procedure employed in this cycle includes the actual acquisition of all goods and services required, the disbursement of cash with the purchase allowances, discounts and returns following closely. During these processes, firms have to ensure they have the necessary documentation during each stage as this allows them to transition easily into all the required action (Whittington & Pany, 2016, p. 34). These might include an acquisition journal, accounts payable trial balance, master file, and a cash disbursement journal. All activities undertaken by the firm are recorded here for future reference or in case of any conflict.
Describe the control procedures that firms commonly use for acquisition and payment activities. Explain which controls and tests of controls would be appropriate for each of the specific controls that you mentioned.
A firm puts internal control procedures place to avoid any errors or misinterpretation. It is therefore typical for companies to employ the services of an agent who would review the vendors regularly. The primary goal is to reduce the frequency of fraud. The cash disbursement and purchasing procedure have often included cases of kickbacks for these services, which in itself challenges the integrity of the whole process (Giove, 2003, p. 23). Separation of duties comes in handy in this situation to keep track on all approvals made. Moreover, relying on an automated system and cash disbursement are some of the control procedures that firms apply during acquisition and payment activities. An automated system would be responsible for the recalculation of the invoice while the cash disbursement control would also incuse confirmation of the good’s completeness.
Describe common substantive analytical procedures that would be used for account balances related to the acquisition and payment activities.
A comprehensive comparison of an acquisition expense account together with all its balance is vital in assessing any errors that might have been made. Another substantive analytical procedure entails the evaluation of all available acciunts for payables that might be unusual in the transaction. Misstatements are therefore classified with ease as they often target a firm’s non-trade liabilities. A comparison of the client’s payable account with records from the previous year which to trace non-existent accounts. Furthermore, calculative ratios are essential here as dividing it with accounts payable reveals all the unrecorded accounts.
Describe common substantive tests of transactions and account details that would be used for the acquisition and payments cycle balances.
The Out-of-Period and Cut off liability tests are common in substantiating the balances in the acquisition and payment cycle. The details under scrutiny would essentially be cash disbursements under a firm’s watch. All documents pertaining to the bills paid are also analyzed in search of any noticeable correlation. Reports related to specific vendors are compared with statements on their payable balance.