Initial Question: "Explain the relationship between substantive tests of transactions for the acquisition and payment cycle and tests of details of balances for the verification of property, plant, and equipment. Which aspects of property, plant, and equipment are directly affected by the tests of controls and substantive tests of transactions and which are not?"

Response: "Substantive tests are meant to show if financial statements in companies' records contain errors. Some of the tests that can be performed are inventory valuations, matching fixed assets to their respective records, testing bank cash balances at the end of the payment cycle, and so on. The majority of these tests are very likely to include a test involving the confirmation of account balances with third parties involved. With property, plant, and equipment, being the companies long term tangible assets, these tests are used to keep these assets in check with the records of payments, and loans taken out for them when it comes to the acquisition and payment cycles the tests are used to show how the flow of capital and resources are being distributed. As the tangible resources of a company increases are supposed to have less capital as it is being spent on these assets. Substantive testing keeps a check and balance on the records of what is being purchased when it is acquired, and how much these new assets cost. When it comes to the acquiring of this new Property, Plant, and Equipment (PP&E), such as land, equipment, buildings, etc. (Lee, 2018). Testing for the acquisition and payment of these resources keeps track of the inflow of resources as the subsequent payments of these long-term tangible assets are acquired. The most affected form of these resources is most likely equipment. As land and buildings are usually a much larger purchase and purchased less frequently as new machinery and tools. Keeping track of multiple verifying purchases into capital assets is much harder than the larger less frequent purchases. When conducting a test of controls and substantive tests of transactions on numerous purchases over a payment cycle, material misstatements are more likely to occur either by accident, on purpose. At the end of payment cycles, these tests can and should be performed to show that everything showed being purchased has a corresponding flow of capital to support the purchase.

References:

Lee, M. (2019, November 18). A Quick Guide for Understanding Property, Plant, and Equipment (PP&E). Retrieved January 8, 2020, from https://www.investopedia.com/ask/answers/06/propertyplantequipment.asp"

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