Chapter 7 - Purchase Systems

Question 1

What are some examples of ordering risks?

Answer 1

• Unauthorised purchases for personal use
• Goods/services not obtained on most advantageous terms

Question 2

What controls are implemented to mitigate ordering risks?

Answer 2

• Company use only
• Authorised suppliers
• Orders should only be made at competitive prices
• Segregation of duties

Question 3

What are examples of ordering tests of control?

Answer 3

• Review list of suppliers
• Cech orders are supported by purchase requisition
• Review security arrangements over blank orders

Question 4

What are the risks associated with recording financial transactions?

Answer 4

• Misappropriated for private use
• Accepted but not ordered
• Invoices may not be recorded
• Full term of credit not taken advantage of

Question 5

What are the controls implemented when recording transactions?

Answer 5

• Business use only
• Only accept if ordered

Question 6

What are the tests of controls for invoices?

Answer 6

• Check records
• Check entries into payables ledger
• Verify credit notes
• Test numerical sequence
• Obtain explanations for long term outstanding items

Question 7

What are examples of payment risks?

Answer 7

• False invoices paid in error
• Invoices paid prematurely
• Payment incorrectly recorded
• Credits incorrectly recorded
• Payments recorded in wrong period

Question 8

Where should all expenditure be recorded?

Answer 8

Nominal ledger

Question 9

How many signatures are required on cheques?

Answer 9

2 min

Question 10

If goods inwards are not checked, what is the most likely consequence?

Answer 10

Inferior quality of goods accepted

Question 11

What is the ideal situation for purchase ordering?

Answer 11

Production department requisition materials

Orders placed by purchasing department with authorisation of purchasing director

Question 12

what is the most likely consequence of a Purchase ledger clerks permitted to amend standing data on the payables master file?

Answer 12

Payments made to fictitious suppliers

Question 13

What can result if records of goods are not kept?

Answer 13

Goods can be used for private purposes

Question 14

What may happen if the payment listing produced by the accounting system is only read by the payments clerk?

Answer 14

Invoices may be paid at the wrong time