Tag (SQ): Purchases System

Bertram Co
Bertram Co assembles fridges, microwaves, washing machines and other domestic appliances from parts procured from a large number of suppliers. As part of the interim audit work two weeks prior to the company year-end, you are testing the procurement and purchases systems and attending the inventory count.

Procurement and purchases system
Parts inventory is monitored by the stores manager. When the quantity of a particular part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. A copy of the e-mail is filed on the store manager’s computer.
Staff in the procurement department check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). A copy of the EDI order is filed in the order database by the computer system. The order is identified by a unique order number.
When goods are received at Bertram, the stores clerk confirms that the inventory agrees to the delivery note and checks the order database to ensure that the inventory were in fact ordered by Bertram. (Delivery is refused where goods do not have a delivery note.)
The order in the order database is updated to confirm receipt of goods, and the perpetual inventory system updated to show the receipt of inventory. The physical goods are added to the parts store and the paper delivery note is stamped with the order number and is filed in the goods inwards department.
The supplier sends a purchase invoice to Bertram using EDI; invoices are automatically routed to the accounts department. On receipt of the invoice, the accounts clerk checks the order database, matches the invoice details with the database and updates the database to confirm receipt of invoice. The invoice is added to the purchases database, where the purchase day book (PDB) and suppliers individual account in the payables ledger are automatically updated.

Required:

(a) List SIX audit procedures that an auditor would normally carry out on the purchases system at Bertram Co, explaining the reason for each procedure.

(b) List FOUR audit procedures that an auditor will normally perform prior to attending the client’s premises on the day of the inventory count.

(c) On the day of the inventory count, you attended depot nine at Bertram. You observed the following activities:

• Pre-numbered count sheets were being issued to client’s staff carrying out the count. The count sheets showed the inventory ledger balances for checking against physical inventory.
• All count staff were drawn from the inventory warehouse and were counting in teams of two.
• Three counting teams were allocated to each area of the stores to count, although the teams were allowed to decide which pair of staff counted which inventory within each area. Staff were warned that they had to remember which inventory had been counted.
• Information was recorded on the count sheets in pencil so amendments could be made easily as required.
• Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets – which were numbered by staff as they were used.
• At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed.

Required:
(i) List the deficiencies in the control system for counting inventory at depot nine.
(ii) For each deficiency, explain why it is a deficiency and state how that deficiency can be overcome.

(d) (i) State the aim of a test of control and the aim of a substantive procedure.

(ii) In respect of your attendance at Bertram Co’s inventory count, state one test of control and one substantive procedure that you should perform.