Chapter 7 PURCHASES

Question 1

What are the key risks when an order is placed?

Answer 1

• Goods not high quality enough for value of money
• unauthorised purchases may be made for personal use

Question 2

What are the key control objectives when an order is placed?

Answer 2

• purchases should only be from approved suppliers at competitive prices
• purchases are only made for valid business reasons

Question 3

what are the key controls activities when an order is placed?

Answer 3

• new suppliers must be authorised by management
• evidence needed for need of purchase
• sequentially numbered order forms
• authorisation of order forms by an appropriate manager
• central purchasing department

Question 4

What are the key risks when goods are received?

Answer 4

• goods accepted when they weren’t ordered
• receipts not recorded
• goods misappropriated

Question 5

What are the key control objectives for when goods are received?

Answer 5

• only goods ordered are accepted
• all receipts recorded
• goods received should be stored securely

Question 6

What are the key control activities for when goods are received?

Answer 6

• examine goods inwards for quantity, quality
• record goods inward on sequentially numbered goods receipt notes
• match GRNs to invoices
• physical controls over stores

Question 7

What are the key risks when invoices are raised?

Answer 7

• invoices not received
• incorrect invoices

Question 8

What are the key control objectives when invoices are raised?

Answer 8

• check invoices are correct
• all credit notes to which the company is entitled are claimed

Question 9

What are the key control activities when invoices are raised?

Answer 9

• match invoice details to GRNs
• arithmetic check on supplier invoices
• claim credit notes for all goods rejected/ returned

Question 10

What are the key risks when purchases are recorded?

Answer 10

• purchases may not be recorded
• purchases recorded with no receipt

Question 11

What are the key control objectives when purchases are recorded?

Answer 11

• all valid purchases are recorded at correct amount
• purchases recorded in correct supplier accounts

Question 12

What are the key control activities when purchases are recorded?

Answer 12

• match cash payments to invoices
• compare monthly supplier statement to payables ledger balances
• reconciliation of purchase ledger with nominal ledger

Question 13

What are the key risks when cash is paid?

Answer 13

• false invoices paid
• payments are not recoded at he correct amount or in correct supplier accounts

Question 14

What are the key control objectives when cash is paid?

Answer 14

• payment s only made for goods received
• only valid expenditure is paid
• payments only made once
• payments are recorded correctly

Question 15

What are the key control activities when cash is paid?

Answer 15

• segregation of duties
• payment approved after checking supporting documentation
• invoices labelled as paid to avoid duplication
• appropriate limits set on amounts that can be authorised
• compare monthly supplier statements to payables ledger balances