The Purchase system

Question 1

Purchase/payables ledger?

Answer 1

Amounts owed by the company to each supplier for goods (inventory) purchased on credit.

purchases mainly inventory but can be PPE

Question 1

Sales/receivables ledger?

Answer 1

The amount owed to the company by each customer for goods sold on credit.

Question 2

What words are used interchangeably?

Answer 2

Purchasing = sourcing = procurement

Question 3

What are the key elements of purchase systems?

Answer 3

• ordering
• goods inwards and recording of invoices
• payments

Question 4

What are the key controls of purchase system?

Answer 4

• authorisation
• matching
• pre numbered sequence

Question 5

What is the purchase requisition process?

Answer 5

• Need to purchase goods from managers in operating departments
• Purchase requisition notes identify good to be ordered (can be hard or electronic)
• PRN can be automatic when reorder level reached / manually generated
• Need to be authorised, pre-numbered and sent to purchase order department

Question 6

What is an example of an ordering risk?

Answer 6

• Goods and services might be obtained on the most advantageous terms (risk)
• Ensure orders are only made with authorised suppliers (prevent people from using family/friends for own advantage) (control objective)
• Authorisation of order forms, evidence of need of purchase before ordering (controls)
• inspect order forms/ PRN as evidence, sequence checks, review sample against authorised supplier list (test of controls)

Question 7

What is an example or goods inwards risk?

Answer 7

goods may be accepted that haven’t been ordered or are damaged - risk

goods/services only accepted if they have been ordered and order has been authorised - control objective

segregation of duties: ordering, accounting and checking functions - controls

inspect if signature matched on GRN and purchase order, sequence checks

Question 8

What is an example of a recording invoices risk?

Answer 8

invoices may not be recording resulting in them not paying for inventory - risk

all entries into the payable ledger are made to the correct payable ledger account - control objective

regular maintenance and reconciliation to payables control account in ledger and reconciliation to supplier statements - controls

inspect reconciliation of payables ledger to supplier statements for a signature - test of controls

Question 9

What is an example of a payment risk?

Answer 9

False invoices paid/invoices not paid on time. payment not correctly recorded - risks

all expenditure is for goods that have been received and expenditure is authorised - control objective

Approval limits of expenditure by junior managers etc, all correctly recorded and matched by outstanding invoice - controls

observe segregation of duties, check GRN agrees to invoice, review cheque signature - test of controls