Chapter 7 - Purchases system Flashcards
What are the four stages of the purchases system we must consider when implementing controls?
1) A purchase order is raised
2) The goods are received by the company
3) A purchase invoice is received from the supplier
4) The purchase invoice is paid
What risks might a company recognise at the raising purchase order stage?
Unauthorised purchases may be made for personal use.
Goods and services might not be obtained on the most advantageous terms.
What are three control objectives that might arise from the risks at the purchase order stage?
All orders for goods and services are properly authorised and duly processed. All orders are for goods and services actually required by the company.
Orders are only made with authorised suppliers.
Orders are made at competitive prices.
What are eight controls that might be put in place to mitigate the risks at the purchase order stage?
Segregation of duties; requisition and ordering
Central policy for choice of suppliers
Evidence required of requirements for purchase before purchase authorised (pre-set re-order quantities and re-order levels)
Order forms prepared only when a pre-numbered purchase requisition has been received
Authorisation of order forms
Pre-numbered order forms
Safeguarding of blank order forms
Review for outstanding orders
Monitoring of supplier terms and taking advantage of favourable conditions (bulk order and prompt payment discounts)
What risks might a company recognise at the goods received stage?
Goods may be misappropriated for private use.
Goods may be accepted that have not been ordered.
Goods recieved may be damaged or the wrong item
What are three control objectives that might arise from the risks at the goods received stage?
All goods and services received are used for the company’s purposes, and not private purposes.
Goods and services are only accepted if they have been ordered, and the order has been authorised.
All goods and services received are accurately recorded.
All goods received are checked before accepting
What are three controls that might be put in place to mitigate the risks at the goods received stage?
Examination of goods inwards
Recording arrival and acceptance of goods
Comparison of goods received records with purchase orders
What risks might a company recognise at the purchase invoice stage?
Invoices may not be recorded resulting in non-payment.
The company may not take advantage of the full period of credit that is available.
The company may not record credit notes resulting in paying invoices unnecessarily.
What are three control objectives at the purchase invoice stage?
All credits to which the company is entitled are claimed and received.
Receipt of goods and services is necessary in order for a liability to be recorded.
All credit notes that are received are recorded in the nominal ledger.
What are eight controls at the purchase invoice stage?
Referencing of supplier invoices: numerical sequence and supplier reference
Checking of suppliers’ invoices
Segregation of duties: accounting and checking functions
Prompt recording of purchases and purchase returns ledger
Regular maintenance of payables ledger
Comparison of monthly statements of account balance from suppliers with payables balances
Review of classification of expenditure
Matching of goods received records and invoices
What are five risks regarding payments?
False invoices are paid in error.
Invoices are paid too soon.
Payment is not correctly recorded.
Credits are not correctly recorded.
Payments are not recorded in the correct period.
What are four control objectives regarding payments?
All expenditure is for goods that are received.
All expenditure is authorised.
All expenditure that is made is recorded correctly in the nominal ledger.
Payments are not made twice for the same liability.
What are three areas of control regarding payments?
Cheques and cash payments generally
Cheque and bank transfer payments
Cash payments
What are four areas regarding tests of controls concerning payments?
Payments in cash at bank account (authorisation)
Payments in cash at bank account (recording)
Bank reconciliations
Petty cash payments
