Purchases system Flashcards
What are the stages of the purchases cycle? (5)
- Order placed
- Goods received
- Invoice received
- Purchase recorded
- Cash paid
What are the key risks when an order is placed? (2)
- Goods and services may not be of good enough quality or value for money
- Unauthorised purchases may be made for personal use
What are the key control objectives when an order is placed? (2)
- Purchases should only be from approved suppliers at competitive prices
- Purchases are only made for valid business reasons
What are some examples of controls activities when an order is placed?
CANES
- Central purchasing department or maintenance of approved supplier list
- Authorisation of order forms by an appropriate manager
- New suppliers must be authorised by management
- Evidence required of need for purchase before authorisation
- Sequentially numbered order forms
What are the key risks when goods are received? (3)
- Goods may be accepted when they were not ordered by the company
- Receipts may not be recorded
- Goods may be misappropriated
What are the key control objectives when goods are received? (3)
- Only goods ordered by the company are accepted
- All receipts should be recorded
- Goods received should be stored securely
What are some examples of controls activities when goods are received?
PERMS
- Physical controls over stores
- Examine goods inwards for quantity, quality, and condition, and agree to purchase order
- Raise a sequentially numbered returns note for all rejected/returned goods
- Match goods receipt notes to invoices and follow up unmatched goods receipt notes
- Record goods inwards on sequentially numbered goods receipt notes
What are the key risks when an invoice is received? (2)
- Invoices may not be received resulting in slow payment and loss of supplier goodwill
- Invoices may not be corect
What are the key control objectives when an invoice is received? (2)
- Ensure invoice details are correct
2. All credit notes to which the company is entitled are claimed
What are some examples of controls activities when an invoice is received? (3)
- Match invoice details to goods received notes
- Arithmetic checks on supplier invoices
- Claim credit notes for all goods rejected/returned and follow up unmatched returns notes
What are the key risks when a purchase is recorded? (2)
- Purchases may not be recorded resulting in misstatements in the financial statements
- Purchases may be recorded where there was no receipt
What are the key control objectives when a purchase is recorded? (2)
- All valid purchases are recorded, at the correct amount, and in the correct period
- Purchases are recorded in the correct supplier accounts
What are some examples of controls activities when a purchase is recorded? (3)
- Match cash payments to invoices
- Compare monthly supplier statements to payables ledger balances
- Reconciliation of payables ledger control account
What are the key risks when cash is paid? (2)
- False invoices are paid
2. Payments are not recorded at the correct amount or in the correct supplier accounts leading to disputes
What are the key control objectives when cash is paid? (3)
- Payment is only made for goods received
- Only valid expenditure is paid
- Payments are only made once
- Payments are recorded correctly
