Purchases system

Question 1

What are two risks when considering purchase orders?

Answer 1

Unauthorised purchases may be made for personal use.

Goods and services might not be obtained on the most advantageous terms.

Question 2

What are three control objectives regarding purchase orders?

Answer 2

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.

Question 3

What are nine controls regarding purchase orders?

Answer 3

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)

Question 4

test of control

Answer 4

A test of controls is an audit procedure to test the effectiveness of a control used by a client entity to prevent or detect material misstatements.