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Purchase and payment cycle, Substantive testing, Compiled from learning…

- - - - Individual supplier reconciliations are prepared and act as supporting documents to payments. Calculations are reviewed by an independent person
        
        Test: Select a sample of reconciliations and trace payment through creditors reconciliations for mathematical accuracy, correctness in terms of source documents and check for a reviewers signature.
      - Calculations are revised by same person making the payment to save time
  - - - Payments are posted from the payment advice from the individual creditor's account, and the total from the creditors' control account.
        
        Test: Select a sample of payment advices and follow entries through the individual creditors account and the creditors control account and inspect that the details match.
      - Payments are posted from invoices from suppliers.
  - - - Creditors control account in general ledger is kept up to date and reconciled on a regular basis with the creditor's ledger. Payment advices iare recorded numerially and missing numbers are followed up.
        
        Test: Select a sample from the creditors reconciliations and check for accuracy by reperforming calculations also inspect for numerical sequence on payment advices and signatures as proof that missing numbers were followed up.
      - Payment advices is randomly filed. Reconciling of accounts rarely takes place.
  - - - Creditor's number is shown on payment , codes and numbers are reviewed by independant person
        
        Test: From a sample of payments check if it has been posted to the correct creditors account.
      - Creditors do not have separate accounts, no unique numbers assigned to creditors
  - - - All payment done should be authorised by senior management. payment advices or cheques should have two signatures, showing that it was reviewed.
        
        Test:From a sample of payment from the bank statement, match the cheque requisition and inspect the details are the same and that the signatures of authorisation is present.
      - Payments are not reviewed by two persons, approval is given by receiving the invoice.
  - - - All payment are recorded in the correct period according to the date the payment was made.
        
        Test: Select payment before and after year end and follow through to the creditor's account and inspect whether it has been recorded in correct period based on the date of the cheque.
      - Payment dates are recorded as the date of invoiced
  - - - Payments are supported by Cheque payment requisition; creditor statement; creditors reconcilitaion; PO,GRN, DN and invoice.
        
        Test: Select a sample of payments from the creditors account ledger and inspect if the supporting documentation is there like a authorised cheque requisition, a creditors' reconciliation, a paid cheque, a GRN and PO, Invoices and creditors statement.
      - The company does not collect all the required documentation, for example the delivery notes are not deemed necessary.
- - - - Controls: The invoice is independently check for mathematical accuracy. To be verified is prices compared with order, quantity should match the GRN, accounting accurary checked.
        
        Test: Select a smaple of invoices and inpect the following: the price on the invoice and PO and price list and the quantity agrees. re-perform calculations to check for the accuracy of the invoice.
      - Invoices is not checked only filed under the supplier name.
  - - - GRN is matched with the DN and short deliveries is indicated. Unmatched invoices is kept separate and followed up by a senior buyer. The GRN is matched with invoice and recorded in purchase journal. Missing number should be followed up.
        
        Test: Select a sample of the documentation and inspect whether they are numbered numerical and the signatures as proof of missing followed up, Select a sample of credit notes and match it with GRN and DN and ensure the details match, From the register select a sample of entries and inspect if the senior buyer followed up on mismatched invoices, by way of signature if checked.
      - The GRN is not completely filled out with required data, like date, goods received, quantity, and receiving clerk details.
  - - - Controls; The purchase journal is updated from invoices, From there it is posted to the creditors account in the creditors ledger and the respective control accounts in the general ledger. Creditors control account should be reconciled regularly and signed by a manager as evidence.
        
        Test: Trace a sample of entries in the purchase journal to the creditors accounts and general ledgers. also select a few creditors do check the reconciliations done if all documentation agrees and that ti was signed off by a senior management member.
      - Reconciliations is done once a year without a managers signature. Purchase journal is recorded from quotes received.
  - - - Controls: Stock decrease to re-order level, a requisition request is made. Purchasing department is creating Order of stock/materials. orders are authorised by Head of Departement.
        
        Test: Select a sample of PO's and inspect for signatures of the buyer and purchase manager
      - Foreman in Factory issues PO without getting approval from purchasing department
  - - - Controls: Inter group purchases should be distinguished from other invoices by a code number and be separately recorded
        
        Test: Select a smaple of purchase and inspect if it was classified correctly.
  - - - Control: All entries in Purchase journal should be accompanied by a requisition, PO, GRN, DN, Invoice and Creditors statement
        
        Test: Select a sample of purchases from the purchase journal and inspect if the supporting documentation is there like a purchase requisition, a PO, a DN, a GRN, Invoices and creditors statement.
      - Weakness; Not all the necessary documentation is submitted to the accountant to file.
  - - - The date of delivery is captured in the purchase journal from the invoice received.
        
        Test: Select a sample of GRN’s dated before and after year end. Match the GRN with invoices and follow through to the purchase journal. Inspect that the purchases are recorded in the correct accounting period based on the date of delivery.
      - The date of the quote or purchase order was recorded in the purchase joournal.