Acquisition and Payment CycleChapter 18Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts PayableClasses of Transactions, Accounts, Business Functions, and Related Documents and Records for the Acquisition and Payment CycleThe acquisition and payment cycle involves the acquisition of raw materials, equipment, supplies, utilities, repairs and maintenance, and research and development. It is important to audit the acquisition and payment cycle in order to confirm whether or not the accounts affected by the acquisitions are accurately presented in accordance with accounting standards. There are three different classes of transactions involved with this cycle–acquisitions of goods and services, cash disbursements, and purchase returns and allowances and purchase discounts. The accounts that are typically involved in the acquisition and payment cycle are–cash, purchase returns and allowances, purchase discounts, manufacturing expense control, accounts payable, selling expense control, raw material purchases, property, plant and equipment, prepaid expenses, and administrative expense control.
One class of transactions, acquisitions of goods and services, affect accounts such as inventory prepaid expenses, accounts payable, and property, plant and equipment. One example of a business function of this class of transaction is processing purchase orders. The documentation used for that function a purchase requisition and a purchase order. A purchase requisition is the document used to request goods and services by an authorized employee. A purchase order is the document that a customer uses to order goods and services from the vendor. The purchase order should be detailed with a description and quantity of the intended purchases. Another business function of acquisitions of goods and services is receiving goods and services which is supported by the receiving report. The receiving report is a document created upon receiving the purchased goods or service. Like the purchase order, the receiving report will provide a description and quantity of the goods.
Another class of transactions, cash disbursements, affects accounts such as cash, accounts payable, and purchase discounts. The main business function of cash disbursements is processing and recording cash disbursements. A common document that supports this business function is a check. When a check is used to pay for a good or service, it goes to the payee with copies of that check filed for future reference. The checks written are recorded in a cash disbursements transaction file, which is a computerized file including all the cash disbursements of a specified period. A report that comes from the cash disbursements transaction file is the cash disbursements journal or listing, which includes all the transactions of any time period.
The Money-Laundering Act
A money-laundering law is an instrument that regulates the laundering of cash (i.e., a money-laundering operation) by law enforcement agencies and criminal activities, especially in developing countries, with respect to tax revenues.
Money laundering rules for criminal activities in developing countries
No. 1: In those cases where money has been involved in transactions involving money laundering as described in Sec. 11, no civil penalty is applied for money laundering, unless one of the following conditions is met: (1) money laundering is organized, organised, or performed within the law.
(2) money laundering is committed under a scheme or scheme of which at least one person is guilty in connection with a single transaction, except in certain cases where a significant number of the crimes are prosecuted in parallel with a criminal investigation.
(3) money laundering is undertaken with the intent to make, to gain, or to conceal illicitly money.
(4) money-laundering is performed without the intent of being or to gain money.
(5) money-laundering occurs when a currency which is considered a real, tangible product, or a thing or something which has value in money and that is used principally or principally for commercial purposes is transferred to another person or transaction. Money laundering also occurs when a money-laundering is carried out by a person or entity that cannot be determined in the financial statements. Money laundering by a person commits money laundering to a person if it is done to facilitate money laundering by the person, or by a person other than a foreign state that is concerned.
Note: In this subsection, “foreign state” means a state or other nation.
Money laundering in India
No. 2: In India, no civil penalty is applied for money laundering. Where money has been involved in transactions involving money laundering as described in Sec. 11, the person is presumed guilty of the crime and is liable to penalty under the Indic Penal Code. Income tax has been added as an offence under this section as a consequence of the enactment of Section 41 of this Schedule.
Note: Money laundering in India is not allowed under law.
Money laundering in the Philippines
No. 3: The provisions of the Money-Laundering Act make it necessary for any person to show that funds for the intended purpose of conducting the money-laundering has been transferred.
Money laundering in the Philippines: Income Tax
Payment of Income tax in the Philippines for cash or other tangible property
Suspension of Excise Tax for money laundering
Suspension of Excise Tax for money laundering
No. 4: In the event or in the circumstances, the authority issuing the penalty is obliged to declare a forfeiture as an offence under this Act.
Preliminary penalty: Disposition of forfeiture under this Section
No