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Question No .1: The Professionals'Academy of Commerce Audit and Assurance

The document describes the purchasing system of Faizan & Co, which has several deficiencies: 1) Requisition forms do not require authorization and do not reference inventory levels. 2) The approved suppliers list was last updated 24 months ago. 3) Purchase orders are not matched to goods received notes before invoices are paid. 4) Invoices are paid 60 days after input into the system without matching to goods received. 5) Purchase invoices are filed manually before batch input into the purchase ledger.

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Waseim khan Barik zai
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74 views2 pages

Question No .1: The Professionals'Academy of Commerce Audit and Assurance

The document describes the purchasing system of Faizan & Co, which has several deficiencies: 1) Requisition forms do not require authorization and do not reference inventory levels. 2) The approved suppliers list was last updated 24 months ago. 3) Purchase orders are not matched to goods received notes before invoices are paid. 4) Invoices are paid 60 days after input into the system without matching to goods received. 5) Purchase invoices are filed manually before batch input into the purchase ledger.

Uploaded by

Waseim khan Barik zai
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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THE PROFESSIONALS’ACADEMY OF COMMERCE

AUDIT AND ASSURANCE

Chapter 6 Total Marks: 32

Section: A Time allowed: 60 mins


Question no .1
Faizan & Co manufactures custom made furniture and its year end is 30 April. The
company purchases its raw materials from a wide range of suppliers. Below is a
description of purchasing system.
When production supervisors require raw materials, they complete a requisition form and
this is submitted to the purchase ordering department. Requisition forms do not require
authorization and no reference is made to the current inventory levels of the materials
being requested. Staff in the purchase ordering department uses the requisitions to raise
sequentially numbered purchase orders based on the approved suppliers list, which was
last updated 24 months ago. The purchasing director authorizes the orders prior to these
being sent to the suppliers.

When the goods are received, the warehouse department verifies the quantity to the
suppliers dispatch note and checks that the quality of the goods received are satisfactory.
They complete sequentially numbered goods received note (GRN) and send a copy of
the GRN to the finance department.
Purchase invoices are sent directly to the purchase ledger clerk, who stores them in a
manual file until the end of each week. He then inputs them into the purchase ledger using
batch controls and gives each invoice a unique number based on the supplier code. The
invoices are reviewed and authorized for payment by the finance director, but the actual
payment is only made 60 days after the invoice is input into the system.
Required:
In respect of the purchasing system of Faizan & Co:

a) Identify and explain FIVE deficiencies; and


b) Recommend a control to address each of these deficiencies.
(Note: The total marks will be split equally between each part.)
(10 marks)

Question no.2
What are the suitable controls over dispatch of goods and invoicing department? What
tests of controls should an auditor apply to this department in order to ensure the
operating effectiveness of controls?
(10 marks)

Question no.3

Rayyan Co is a company listed on a stock exchange. It manufactures furniture which it


supplies to a wide range of retailers across the region. The company has an internal audit (IA)
department and the company’s yearend is 30 June 20X9. You are an audit supervisor with
Arshan & Co, preparing the draft audit programs and reviewing extracts from the internal
controls documentation in preparation for the interim audit.
Sales
Rayyan Co generates revenue through visits by its sales staff to customers’ premises. Sales
ledger clerks, who work at head office, carry out credit checks on new customers prior to being
accepted and then set their credit limits. Sales staff visit retail customers’ sites personally and
orders are completed using a four-part pre-printed order form. One copy is left with the customer,
a second copy is returned to the sales ordering department, the third is sent to the warehouse
and the fourth to the finance department at head office. Each sales order number is based on
the sales person’s own identification number in order to facilitate monitoring of sales staff
performance.
Retail customers are given payment terms of 30 days and most customers choose to pay their
invoices by bank transfer. Each day Aswad Shah, a finance clerk, posts the bank transfer
receipts from the bank statements to the cash book and updates the sales ledger. On a
monthly basis, she performs the bank reconciliation.
Required:

In respect of the internal controls of Freesia Co:

(i) Identify and explain Four deficiencies; (4)


(ii) Recommend a control to address each of these deficiencies; and (4)
(iii) Describe a TEST OF CONTROL the external auditors should perform to assess if each
of these controls, if implemented, is operating effectively to reduce the identified
deficiency. (4)

Note: Prepare your answer using three columns headed Control deficiency, Control
recommendation and Test of control respectively. The total marks will be split equally
between each part.

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