Question & Answer: ACT 5743-Advanced issues in Auditing…..

ACT 5743-Advanced issues in Auditing

For non-routine orders, the user department completes a purchase requisition. One copy is filed in the user department and one copy is sent to the purchasing agent. The purchasing agent then processes the request by completing a three-part purchase order and process as described below. For routine orders, the purchasing agent proceeds as discussed below.

After shipments are processed against the inventory master file, the agent records an EOQ, which is a software routine in the inventory-purchases module, and generates an inventory reorder report and a daily listing of items requiring reorder. The purchasing agent uses this report to select items for reorder. Once she has selected the items from the report, she uses the LAN and inventory-purchases module to initiate the preparation of a purchase order.

The program updates a field in each applicable vendor master file record to indicate the items that are on order from each selected vendor. The software also prints purchase orders in three parts, along with a report listing the purchase orders. The purchasing agent sends the first copy of the first order to the vendor and places the second copy in the open purchases order file pending receipt of the vendors invoice and the receiving report. She sends a copy of the purchase order report containing the on-order items to the inventory storeroom clerk. The clerk is able to access the report data items on the LAN. The menu on the computer screen allows her to accept the data in the report and thereby update the quantity order field in each applicable inventory master file record.

The third copy of the purchase order is used as a receiving report. Upon receipt, clerks count the material and record the quantities received on the receiving report copy. The receiving personnel enters the receipts into the LAN software, which updates the “merchandise received” field in the applicable inventory master file record to indicate that the material has been received. The module also prints a daily receiving log. Merchandise and the third copy of the purchase order are sent to the warehouse, where the merchandise is counted. After verifying the receiving clerk’s count and reconciling any discrepancies, the data is input into a computer screen template. The LAN software updates the relevant inventory master file record by increasing the quantity on hand. Any differences between the quantity received and the quantity ordered are listed on the report that is sent to the purchasing agent, along with the third copy of the receiving report. The purchasing agent accesses this report from the LAN and uses it to reconcile any differences with the vendor.

Required

Evaluate internal control risk over purchases using “low,” “moderate,” or “high” risk categories. Explain your answer.

Expert Answer

 

Ans: Internal risk is a measurement of how efficient and effective the organisation internal control system is to detect fraud and misstatement. In my opinion based on above facts stated about the process, I believe the internal control risk of organisation is low. As the process is guided by both human and software, the entire report iis first prepared by the software so any authorised person in the company can check it from anywhere and at any point of time. There after the report is being prepared in triplicate and send to different departments so it is being checked at various level so if there is any mismanagement it could be held up at any point. And there is also a system in place to reconcile the differences if any so it ensures proper internal control in the entire process.

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