Question

why is it improtant that auditors familiarize themselves with the acquistion and expenditure cycle?

Answer 1

Acquisition and Expenditure Cycle is significant for any audit. It mainly focus on all purchase transactions. Thorough audit of this area - means, verify the billing process like start from requisition placement, receipt of quotation, issuance of PO, goods receipt note, vendor invoice till bill payment. This step involves different critical audit areas like whether finance team has compared different quotations and only then issued PO or not, then proper GRN (goods receipt note) is in place or not, proper invoice is in place or not, most importantly all the above steps were occured with proper authorisation or not has to be checked. Because at time, corporate may issue Fake PO / invoice and accordingly overstate their expense, which in turn finally show lesser income in books and lesser tax to government. Hence this is the major area of audit and hence auditors have to be very much familiarized with acquisition and expenditure cycle to ensure all expenses in books are properly authorised and accounted without any overstatement or understatement.