ch7 - content

what are the risks of orders placed

• Unauthorised purchases for personal use

• Purchases from bad suppliers

• Purchases not needed by business

• Paying too much

• Orders not properly authorised

what are control objectives for orders

• All orders properly authorised

• Only goods required by company ordered

• Orders only from authorised suppliers

• Orders made at competitive prices

what controls in place for orders

Authorised supplier list

Only approved suppliers can be used.

Evidence of need before purchase

• Inventory levels checked

• Purchase requisition raised

Pre-numbered purchase requisitions Pre-numbered purchase orders Purchase orders only raised after requisition received Purchase order authorised by manager Segregation of duties

Separate:

• Requisitioning

• Ordering

Safeguard blank purchase orders Monitor supplier terms

Take advantage of:

• Bulk discounts

• Prompt payment discounts

Review outstanding orders

test of controls for orders

Check supplier list

Trace sample orders to approved supplier list.

Inspect purchase orders

Check:

• Authorisation

• Supporting requisition

Sequence check

Purchase order numbers.

Inspect security

Blank order forms stored securely.

Review outstanding order reports

risks of goods received

• Goods stolen

• Goods accepted that weren't ordered

• Goods received but not recorded

• Poor-quality goods accepted

• Returns not processed

control objectives for goods received

• Goods only accepted if ordered

• Goods accurately checked

• All receipts recorded

• Goods safeguarded

• Returns properly recorded

what are controls for goods received

Inspect goods on arrival

Check:

• Quantity

• Quality

• Condition

Goods Received Record (GRR) / GRN

Prepared for every delivery.

Pre-numbered GRRs Match GRR to Purchase Order Secure storage of inventory Goods Returned Notes (GRNs for returns)

Pre-numbered.

Follow-up missing credit notes Segregation of duties

Checking goods separate from accounting.

what are tests of controls for goods received

Review GRR sequence

Investigate missing numbers.

Match:

GRR ↔ Purchase Order

Check quality inspections performed Inspect returned goods records Inspect follow-up of missing supplier credit notes Check inventory records updated

what are risks with purchase invoices

• Invoice not received

• Wrong price charged

• Wrong quantity charged

• Invalid invoice recorded

• Credit note missed

what are control objectives for purchase invoices

• Invoice details correct

• All liabilities recognised

• All purchase invoices recorded

• All supplier credits obtained

what are controls for purchase invoices

Match invoice to GRR Match invoice to Purchase Order Three-way match

Purchase Order ⬇ GRR ⬇ Supplier Invoice

Arithmetic checks

Check:

• Totals

• Extensions

• VAT

Supplier invoice sequence Record supplier credit notes Follow-up unmatched returns Monthly supplier statement reconciliation Regular maintenance of payables ledger Accruals for goods received but not invoiced Expense classification review

what are tests of controls for purchase invoices

For sample invoices

Check:

Invoice ↔ GRR

Invoice ↔ Purchase Order

Check:

• Quantities

• Prices

• Calculations

Review supplier statement reconciliations Review unmatched GRRs Inspect received credit notes Check postings to payables ledger Sequence checks

• Supplier invoices

• GRRs

• Goods returned notes

what are risks of payment

• False invoices paid

• Wrong supplier paid

• Duplicate payment

• Early payment

• Payment not recorded

• Payments recorded in wrong period

what are control objectives of payments

• Only valid suppliers paid

• Only genuine expenditure paid

• Payments authorised

• Payments recorded correctly

• Liabilities only paid once

what are the controls for payments

Payment only after supporting documents checked

Must inspect:

• Supplier invoice

• Purchase Order

• GRR

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Authorisation of payments

Bank transfers/BACS must be approved.

Segregation of duties

Different people:

• Prepare payment

• Authorise payment

• Record payment

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BACS authorisation process

Payment run reviewed and approved by senior employee.

Supplier statements reviewed Invoices marked "PAID"

Very important control.

Prevents duplicate payment.

Appropriate authorisation limits

Examples:

• Larger payments need two approvals

Payments recorded promptly

tests of controls for payments

Sample payments

Check:

• Authorised

• Initiated by authorised person

Inspect supporting documents

Invoice Purchase Order GRR

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Check invoice marked paid Check postings

Bank → Payables ledger

Review supplier statement reconciliations Reperform bank reconciliation Review unusual reconciling items

purchase requisition

Internal request to buy goods.- for orders

Purchase Order (PO)

Order sent to supplier. - for orders

Goods Received Record (GRR) / GRN

Confirms goods arrived.- receipt

Supplier Invoice

Supplier requests payment. - invoice stage

Supplier Credit Note

Supplier reduces amount owed. - invoice stage

Goods Returned Note

Records returned goods.- invoice stage

BACS Listing

List of supplier payments.- payment

Supplier Statement

External confirmation of balance. - payment

what must be true before paying

Before paying:

✅ Purchase Order

✅ Goods Received Record

✅ Supplier Invoice

must agree.

This single control addresses a huge number of risks and comes up repeatedly.