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Purchase and payment cycle - Coggle Diagram
Purchase and payment cycle
Definition of cycle
Puchases
Ordering of goods
Receiving of goods
Recording of goods
Payment
Consists of 4 functions
Purchases cycle
Ordering Function
Documents
Requisitions
Approved list of suppliers
Supplier price list
Purchase orders
Controls
Separate purchasing department
Purchasing policy which governs reordering levels
Once reorder level reached, purchase requisition will be made out by purchasing department or buyer
List of approved suppliers
Cannot deviate from approved list without authorisation
All changes to authorised suppliers need to be authorised by a senior
Purchase orders
Sequentially numbered
Need to include:
Name of supplier
Quantity ordered
A description of goods
Price of good
Discount
Terms of payment
Delivery address
Signature by the buyer / purchasing department
Before sent to supplier, needs to be authorised by purchase manager
Must be issued in triplicate, copies sent to
The supplier
The receiving department
Copy kept in deliveries pending register to be matched with the delivery note
Recieving function
Documents
Copy of PO
Supplier DN
Goods recieved note
Controls
Receipt of goods
Staff to inspect goods for type, quality and quanity against PO
Inspection before DN is signed
Details of goods recieved
Details of goods received to be captured on GRN
GRN should be signed by person responsible for recieving
GRN
Should include the following
Quantity of goods recieved
PO number
Date of receipt
Description of goods
Details of person who received the goods
Treatment of damaged goods
Not to be accepted
Must be returned to supplier
Accounts and purchasing departments to be notified
Recording function
Documents
Supplier invoice
Copy of PO
copy of GRN
DN from supplier
Purchases journal
Controls
Invoices recieved
Should not be entered into records until accuracy has been checked
SHould check for
Quality, type, quantity and date to GRN and DN
Price, terms and A/C details to PO
Calculations on invoice
Recording of purchases
Should be entered in purchasing journal
Filed under suppliers name and checked to statement from supplier
Disputed invoices
Should be kept separately and followed up by a senior staff member
Goods returned
Goods returned must be sent back to supplier and a CN is made out to supplier
Payments cycle
Documentation
Remittance advices
Cheques
Bank statements
Cash payments journal
Controls
Cheques
Cheque forms
Cancelled cheques should be marked cancelled + attached to cheque conterfoil
Sequentially numbered
Filed in numerical order
Cash cheques should be discouraged
All cheques should be crossed with "not transferable"
Drawing and signing
Should be presented to person responsible for signing with supporting docs
Docs must be inspected and agreed that expenditure was valid and accurate
Docs must be marked as paid
Signed by two signatories with necessary authority levels
Recording of payments
Done by someone independent of person who draws or signs the cheque
Cheques returned from bank should not be available to person who keeps the accounts payable records
Control account must not be accessible to individuals responsible for maintenance of the a/c payable ledger
Regular recons by those independent from those maintaining the ledger
EFTS
Bank a/c should be reconed monthly with cashbook
Should be done by a person independent from individual who writes up the cashbook
Recon should be reviewed by a senior independent official
EFT payments should have
Multilevel passwords from two senior employees. Passwords must be simultaneously entered
Access should be limited to one computer
Termianl should shut down after 3 unsuccessful attempts
Payments should be limited to a specific day
Completeness checks should be performed
Payment should require 2 passwords form 2 senior people
After payments there should be
An audit trail
Payment should reflect on bank statement
A bank recon should be performed
Recon should be done by someone different to the person who did the payment
Test of controls
Validity
Authorisation
Completeness
Accuracy
Recording
Classification
Cut off
Substantive procedures
Tests of detail
Analytical procedures
More general - look at overall picture
Auditor must design and perform some substantive procedures for each class of material transaction (IAS330)
Risk assessment is subjective
Internal control has limitations
Dont have to do both tests of detail and analytical
Takes place at year end
In practice auditor may verify stuff prior to year end and update at year end. Called roll forward tests
Extent of testing
Determined by extent of risk and results of TOC
Use of audit software - see annexure D and note link to computers (unit 6)