Question

test controls on purchases ,sales,fixed assets and creditors.

Answer 1

Audit procedures are performed by auditors on internal controls of business , to ensure that the proper sytems of internal controls are in place .

Test of internal controls also reduces the need for substantive audit procedures to be performed by auditor.

1. Testing Controls on purchases :

Purchases are one of the major element of business operations.

To test the internal controls related to purchase:

An auditor should check if there is proper authorisation system is in place for purchases.

• whether all the purchase requisitions are properly authorise by the person of responsibility.
• Whether are purchse order are made by the authorised person.

Auditor also needs to check for the payment made for purchases .

• Whether payments are matching with the invoice amounts .
• and payments are properly authorised by the department head.

2. Testing Controls on Sales :

Sales is the primary source of revenue of the business . its the major focus area of any business.

To test the internal control related to Sales:

An auditor must check for the assertions of Occurance, Completeness , Cutoff .

• Whether a proper system is in place to record all sales properly.
• Whether proper bills are generated for all the sales made.
• whether proper internal control system is in place to collect the amount of sales.

3. Testing Controls on Fixed Assets :

Fixed assets are widely used in a business to generate revenue .

thus it becomes important for auditor to test the internal controls,

regarding the recording , maintaining and valuation of assets.

• Whether assets are properly recorded as per the accounting standards.
• Whether proper sytem is in place for maintenance of assets and
• whether proper accounting system is in place to record for any depreciation on assets and any sale or immpairment.
• whether assets are physically checked time to time for their existence.
• whether proper valuation system is in place for fixed assets .

4. Testing Controls on Creditors :

Auditor needs to ensure whether there are proper internal controls related to creditors , such as,

• Whether proper approval process for all the invoices is in place.
• whether there are any chances of invoice duplicating.
• whether paid invoices are duly cancelled by person making payments.
• whether payments are duly authorised.
• whether proper system of credit and timely payment is in place.

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