Internal control procedures for purchasing system
•• The company should have clear division of duties between the various departments i.e. the manufacturing department, stores department and factory department.
•• A responsible official should be charged with the duty of overseeing purchase of raw materials in the company and should report to the managing director or other appropriate senior level of management.
•• The company should establish the re-order levels for purchase of all materials used in production. When the re-order level is reached a purchase requisition should be raised and must be authorized by the factory managers. This should then be sent to the purchasing department.
•• Upon receipt of the purchase requisition, it should be checked to confirm that the transaction is authorized. Another person should prepare a purchase order and submit this together with the purchase requisition for the authorization by purchasing manager.
•• Upon delivery an official from stores department must inspect the goods for quality and quantity. All units received should be recorded in a suitable documentation e.g. a goods received note (GRN) which store’s staff and supplier’s staff should counter sign.
•• The goods received note and the suppliers invoice should be taken to the accounts department where an independent person should post the entries to the purchases ledger.
•• Before payments are made to the suppliers, supplier’s statement should be reconciled to the ledger balance.
Wilfykil answered the question on April 12, 2019 at 09:02
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The time is now towards the end of the audit, and you are reviewing working papers produced by the audit team. An example of a working paper you have just reviewed is shown below.
Client Name Specs4You Co
Working paper Payables transaction testing
Year end 30 April 2007
Prepared by ……………………..
Reviewed by ……………………
Audit assertion: To make sure that the purchases day book is correct.
Method: Select a sample of 15 purchase orders recorded in the purchase order system. Trace
details to the goods received note (GRN), purchase invoice (PI) and the purchase day book
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a numerically sequenced purchase order system and details traced as stated in the method.
Details of items tested can be found on another working paper.
Results: Details of purchase orders were normally correctly recorded through the system. Five
purchase orders did not have any associated GRN, PI and were not recorded in the PDB.
Further investigation showed that these orders had been cancelled due to a change in spectacle
specification. However, this does not appear to be a system weakness as the internal controls do
not allow for changes in specification.
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Required:
Explain why the working paper shown above does not meet the standards normally expected of
a working paper.
Date posted: April 12, 2019. Answers (1)
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