In: Accounting
(Security-For-All Bhd (MFA) is a company specializing in installing and maintaining
security systems for businesses and residential customers. It has been operating for
10 years. The company buys supplies ranging from CCTV cameras, smart locks,
keypad locks, sensors, alarms, smoke detectors and other equipment from reputable
vendors in town for customers’ installations
/Purchase of supplies
-The purchasing process starts with filling up of purchase requisition forms by
the Inventory Department when the inventory level reaches the re-order point.
They then select appropriate vendors by searching them online. Next, they
phone the vendors, request one price quotation for each item and give the
vendors a verbal order
-The filled up purchase requisition forms are sent to Purchase Department. A
pre-numbered purchase order is processed by the department for each
requisition and filed together with the earlier purchase requisition form.)
-When the items have arrived, the Receiving Department takes charge and
informs the Inventory Department orally. The receiving clerk then stamps the
purchase order with the date received and noted any difference between the
quantity shown on purchase order and the quantity received. The receiving
clerk then forwards the stamped purchase order and items received back to
the Inventory Department for verification and correction. At the same time, the
receiving clerk informs the Accounts Department that the order has arrived.)
-The Accounts Department then waits for the vendors’ invoice to arrive. The
account clerk files together the vendors’ invoice and purchase order copy
received earlier from the Inventory Department. On a monthly basis, the
account clerk prepares cheque to be paid to each vendor and sent the
cheques to the Treasurer for signature. The treasurer then signs the
cheques.)
/Company’s policies and procedures
Although the company has expanded over the years with more than 100 active
vendor accounts currently in the accounts payable’s ledger, it continues to rely on a
manual system to process all purchase transactions. In addition, the company has
no specific policy on purchase returns. For many years, the defect inventories are
simply kept in store without any follow ups and actions by the storekeeper in the
Inventory Department.)
The company maintains its existing auditor for the current financial year ended 31
December 2020. The auditor is concern that the recent pandemic has resulted in
surge of inventory prices supplied by vendors due to inadequate supply and rising
demand from customers for tightened security measures.)
REQUIRED
1. Describe at least five (5) internal control deficiencies relating to purchasing of
and payments for inventory requisition of SFA Bhd and their possible
misstatements.
2. Describe three (3) substantive audit procedures for purchase and three (3)
substantive audit procedures for accounts payable accounts that must be
performed by auditors.)
3. Identify the assertion related to each of the substantive audit procedures in
(II) above.)
1.
Internal control deficiencies relating to purchasing of and payments for inventory requisition of SFA Bhd and their possible misstatements are:
Possible misstatements may include no recording, incomplete or incorrect recording of purchase orders etc.
Receiving Department takes charge and informs the Inventory Department orally.
Possible misstatements may include no recording, incomplete or incorrect recording of invenory, wrong payment for the incorrect recorded inventory etc.
No follow ups and actions by the storekeeper in the Inventory Department.
Possible misstatements may include wrong calculation of value of the inventory as defected inventory also recorded along with normal stock without any identification.
Possible misstatements may include inaccurate recording of the inventory returns which may leads to the financial loss unsatisfactory stock valuation.
Possible misstatements may include incorrect, inaccurate or no recording of transactions and wrong payment to the vendors and ultimately financial loss to the entity.
2. Three substantive audit procedures for purchase are:
Three substantive audit procedures for payment:
3.
Assertions are: