This document discusses controls related to the purchase and payment process. It identifies key functions including requisitioning goods, preparing purchase orders, receiving goods, storing goods, approving invoices, and recording liabilities. For each function it outlines potential misstatements, necessary controls, and possible tests of operating effectiveness. It also includes a checklist of controls related to trade payables, such as requiring purchase requisitions and purchase orders, approving purchases, reconciling statements, and reviewing supporting documents.

1. Purchase and Payments
FUNCTIO
N
POTENTIAL
MISSTATEMEN
T
NECESSARY
CONTROL
POSSIBLE TEST OF
OPERATING
EFFECTIVENESS
INITIALS
DATE
Requisition
ing goods
and
services
Goods may be
requisitioned for
unauthorised
purposes
General and specific
authorisation
procedures
Inquire about
procedures
Preparing
purchase
orders
Purchases may
be made for
unauthorised
purposes
Approved purchase
requisition for each
order
Examine purchase
orders for approved
requisitions
Receiving
goods
Goods received
may not have
been ordered
Incorrect
quantities,
damaged goods,
or incorrect items
may be received
Approved purchase
order for each
shipment
Receiving clerks to
count, inspect and
compare goods
received with
purchase order
Examine goods
received note for
matching purchase
order
Observe performance
by receiving clerks
Storing
goods
received
for
inventory
Stores clerks may
deny taking
custody of
purchased goods
Obtain signed receipt
upon delivery of
goods from Receiving
to Stores
Inspect signed receipts
Approving
the invoice
Invoices may be
recorded for
goods not
ordered
Matching purchase
order and goods
received note with
supplier’s invoice
Examine supporting
documentation for
invoices
Recording
the liability
Invoices may be
recorded
incorrectly or not
recorded
Independent check of
agreement of prelist
against amounts
recorded in purchase
journal
Periodic accounting
for pre-numbered
goods received notes
and purchase orders
Periodic performance
reviews by
management of
reports comparing
actual asset, payables
and expense balances
Examine evidence of
independent check;
reperform independent
check
Observe procedure;
reperform
Inquire of
management about
results of performance
reviews; inspect
reports

2. with budgeted
amounts

3. Trade Payables
Errors and irregularities include:
1. Purchases may have been recorded to the wrong account
2. A liability may have been set up for a fictitious company
3. The purchase and liability may have been recorded in the wrong accounting period
4. A purchase or liability may have been omitted
5. Purchases may have been recorded but the merchandise may not been received.
Y
ES
NO COMMENTS
Has a purchase requisition to be
raised for all purchases?
 Requisition number is recorded from the
purchase requisition. It is necessary to
serve the customers clearly.
Is the purchase requisition pre-
numbered?
 Necessary to trace the purchase request
Has a purchase order to be
raised for all purchases?
 It necessary to be recorded in the books by
the account manager
Are purchase orders pre-
numbered?
 Purchase orders should be pre-numbered to
ensure completeness and identify “missing”
orders.
Do purchase orders have to be
approved?
 It is required to approved a purchase order
before it is sent to the supplier.
Are vendor’s monthly
statements reconciled to the
purchase ledger?
 To ensure and identify payments you made
or discounts from vendor has not passed, or
pricing claims and returns that have not yet
been credited.
Do adjustments to accounts
payable require the approval of
a responsible official?
 It is required that adjustments to accounts
payable be approved by a responsible
official.
Are all vendors’ invoices
checked for proper pricing,
extensions, footings, and terms?
 Invoices are checked occasionally.
Does the company ensure that
claims for damaged
merchandise are processed
promptly?
 When there is any problem with the
delivery, then the goods are returned with
the driver and the purchase ledger clerk is
informed.
Are unmatched invoices,
receiving reports, and purchase
invoices reviewed periodically?
 From time to time, the purchase ledger is
check right after the sales statement has
been received. It is check and should be
reconcile if not this will be send back to the
Supplier.
Are supporting documents
reviewed by cheque signers
prior to payment?
 It should be reviewed from Purchase
Ledger to the authorization of the payment
and before it is signed by the cheque
signers.
Are supporting documents
stamped “cancelled” by the
cheque signers?
 Cheque is passed to the cheque signers
together with the supporting documents
Are cheques mailed directly by
the person signing the cheque
and not returned to the
preparers?
 It is returned to the preparers to write in the
cash book and post the cheque to the
supplier