Question

The company uses pre-numbered purchase orders. Only the Purchase Manager is able to use and authorize the purchase orders. Once the purchase order has been sent to a supplier, a copy is given to the accounting department. They keep a copy of all the purchase orders and check to see whether any purchase orders are missing in the sequence. Once an invoice is received from the supplier, it isn’t matched to the purchase order and goods received note. It is simply paid by the accounting staff. Once the invoice is paid, the relevant entries are then made in the accounting system by the accounting staff. A junior accounts clerk compares the suppliers’ monthly statements against the general ledger balance for the supplier to make sure there are no errors.

Audit question:
are the controls in place adequate? what improvement can be made.

Answer 1

Yes. There is an adeqacy of internal controls to be enforced in order to avoid discrepencies in accounting ie recording. Internal control meant by the rules, policies, and procedures issued by the company to ensure intergrity in accounting information and to prevent fraud. Internal controls comprised of activities such as authorization, documentation, reconciliation and security.

Preventive controls and Dectective controls are the major types of internal control activities.

Preventive controls include clear documentation and authorization activities and it aims to detect errors and frauds whenever its happening. Authorization of invoice an dverification of expense comes under preventive internal control. Therefore forthe above question internal control mechanism is required. Preventive internal control also restric acces to equipments, inventory, cash and other assets.

Dectective intenal control is required in order to find any missing ie items or events missed out. Reconciliation is the major activity performed. Here data sets are compared and corrective actions are taken place. This can also include external audits and internal audits of assets and inventory.

In the above question both preventive and dectective controls are needed. They can introdue internal control mechanism and can aviod these problems in future also.