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Chapter7
Purchase System
Bhola Nath Kundu ACA
Director, Assurance & Advisory
ACNABIN Chartered Accountants
[Link]@[Link]
Cell # +8801714214990
Chapter. 7: Purchase System
Key controls in the purchase system
Ordering Payment
Goods
inward &
recording
of invoices
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Ordering
Risk • Unauthorized purchases may be made for personal use; and
• Goods and services might not be obtained on the most advantageous terms.
• Segregation of duties; requisition and ordering
• Central policy for choice of suppliers ;
Controls
• Order forms prepared only when a pre-numbered purchase requisition has been received;
• Authorization of order forms;
• Pre-numbered order forms;
• Safeguarding of blank order forms;
• Review for outstanding orders; and
• Monitoring of supplier terms and taking advantage of favorable conditions.
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Ordering
Tests of Controls
• Review list of suppliers and check a sample to orders made;
• Check sequence of pre-numbered order forms;
• Check orders are supported by a purchase requisition; and
• Review security arrangements over blank orders.
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Goods inward and recording of invoices
• Goods may be misappropriated for private use;
• Goods may be accepted that have not been ordered;
Risk
• Invoices may not be recorded resulting in non-payment;
• The company may not take advantage of the full period of credit extended; and
• The company may not record credit notes resulting in paying invoices unnecessarily.
• Examination of goods inwards
• Recording arrival and acceptance of goods (pre-numbered goods received notes);
Controls
• Comparison of goods received notes with purchase orders;
• Referencing of supplier invoices; numerical sequence and supplier reference;
• Checking of suppliers' invoices
• Recording return of goods (pre-numbered goods returned notes); and
• Segregation of duties: accounting and checking functions etc.
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Goods inward and recording of invoices
Tests of Controls • Check invoices for goods - Supported by goods received notes, Entered in inventory records
• For invoices of all types - Check calculations and additions, Check entries in purchase day book
and verify that they are correctly analyzed , Check posting to payables ledger;
• For credit notes - Verify the correctness of credit received with correspondence, Check entries
in inventory records, Check entries in record of returns, Check entries in purchase day book
and verify that they are correctly analyzed, Check posting to payables ledger ;
• Check for returns that credit notes are duly received from the suppliers;
• Test numerical sequence and enquire into missing numbers;
• Obtain explanations for items which have been outstanding for a long time; and
• Verify that invoices and credit notes recorded in the purchase day book.
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Payment
Risk • False invoices are paid in error;
• Invoices are paid too soon;
• Payment is not correctly recorded; and
• Credits are not correctly recorded and Payments are not recorded in the right period
• Cheque and cash payments generally;
Controls
• Cheque and bank transfer payments - Cheque and bank transfer requisitions, Authority to sign
cheques, Prompt dispatch of signed cheques, Obtaining of paid cheques from banks, Payments
recorded promptly in cash book and nominal and payables ledgers; and
• Cash payments - Authorization of expenditure, Cancellation of vouchers to ensure they cannot be
paid twice, Limits on payments, Rules on cash advances to employees, IOUs and cheque cashing.
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Payment
• Payments cash book (authorization) - For a sample of payments: Compare with paid cheques
to ensure payee agrees; Check that cheques are signed by the persons authorised to do so
Tests of Controls
within their authority limits;
• Payments cash book (recording) - For a sample of weeks: Check the sequence of cheque
numbers and enquire into missing numbers; Trace transfers to other bank accounts, petty cash
books or other records, as appropriate; Check additions, including extensions, and balances
forward at the beginning and end of the months covering the periods chosen; Check postings to
the payables ledger;
• Bank reconciliations - For a period which includes a reconciliation date reperform
reconciliation; Verify that reconciliations have been prepared at regular intervals throughout
the year ; and
• Petty cash payments - For a sample of payments: Check to supporting vouchers; Check whether
they are properly approved.
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Deficiencies
it is important to be able to identify the deficiencies of systems
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
Chapter. 7: Purchase System
Bhola Nath Kundu ACA II Director II ACNABIN Chartered Accountants II [Link]@[Link] II Cell # +8801714214990
.
Bhola Nath Kundu ACA
Director, Audit & Advisory
ACNABIN Chartered Accountants
[Link]@[Link]
Cell # +8801714214990