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PURCHASING AND PAYABLES
AUDIT PROGRAM
AUDIT PROGRAM
PURCHASES & PAYABLES
ABC Corporation___________________
Work papers prepared by:
Work papers reviewed by:
Audit Program approved by:
I.
SCOPE/AUDIT OBJECTIVES
A.
This audit program is designed for the compliance testing of the
Purchases and Payables transaction system. Detail objectives are to
ensure:
1.
Purchase orders for goods and services are use.
2.
Purchases or other commitments are initiated only by authorized
personnel on the basis of competitive bids.
3.
Incoming shipments are accepted only if the receiving department has
authorization in the form of a copy the purchase order.
4.
Follow-up is made on purchases if delivery or performance has not been
made by the scheduled delivery date.
5.
Refund or credit is received for all purchase returns or allowances.
6.
Quantity and quality of goods received are as specified before payment is
authorized. Are orders/receiving documents/suppliers invoices matched
before payment is authorized?
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7.
Terms, prices and clerical accuracy of vendors’ invoices are verified
before payment is authorized.
8.
Recorded liabilities are correctly stated. Accruals are made in accordance
with company policy. No unrecorded liabilities exist.
9. Outstanding invoices may be agreed to the accounts payable subsidiary
ledger.
II.
REFERENCES
The following company policies should be referenced:
III.
-
Internal accounting controls-purchase and payables
-
Signature authorization for expenditures
-
Company check signing
-
Current liabilities
Uniform Chart of Accounts Coverage
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IV.
ANALYTICAL REVIEW
A.
General/Overall
1.
Through discussion with local personnel and
Performed
Work paper
By
Reference
update of permanent file information, gain a
working knowledge of the purchasing and
payables
systems
and
related
internal
controls.
2.
_________
_________
_________
_________
_________
_________
require purchase orders.
_________
_________
Process Overview
_________
_________
Using flowcharts, narrative description, or
questionnaire; document the procedures in
place and related internal controls, noting
strengths and weaknesses. By reference to
the policy on “Internal Accounting Controls Purchase
and
Payables”,
identify
and
document the key controls which are to be
relied upon in setting the scope of audit
testing.
3.
During review noted compliance with related
company policies.
4.
Review local policies for controls and local
procedures. Ascertain whether all purchases
B.
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1.
Discuss, flowchart and/or prepare notes on
the
purchase
and
payable
systems,
including:
• Preparation of purchase orders
• Receipt of goods and preparation of
goods received notes
• Procedures on part deliveries
• Approval, matching and processing of
invoices
• Procedures for updating master vendor
files
• Procedures for payment of invoices
2.
_________
_________
_________
_________
_________
_________
Discuss, flowchart and/or prepare notes on
department
procedures
and
practices
including:
•
Filing methods
•
Check signing procedures
•
Procedures for credits for returns
•
Procedures
for
receiving
of
goods
ordered
•
3.
Procedures for matching of documents
For all automated systems in use review:
• User and system documentation
• Access/password security
• Backup methods and frequency
• Offsite storage and recovery capabilities
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V.
1.
Functional Tests/Verification of Controls
Performed
Work paper
By
Reference
Select ____ paid invoices or check payment
transactions depending on systems and filing
procedures. Document selection criteria. If
you are not going to statistically evaluate the
results, judgmentally select larger payments
and various types of payments.
_________
a.
For those selected that require a PO
(purchase order), ensure:
•
The PO is properly completed as to
numbering, dating, description, quantities,
price, and delivery dates.
•
The PO is supported by requisition and/or
underlying documentation. Evidence of
signature
authorization
and
approval
within the guidelines established polices
should be noted.
•
If for fixed assets, ascertain if properly
approved Capital Appropriation Requests
_________
_________
exists.
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•
Performed
Work paper
By
Reference
If for inventory items, trace to posting of
(unit and financial) perpetual inventory
records.
b.
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
Ensure there is independent verification of all
goods and services received. Receipt of
purchased goods should be evidenced by
preparation of receiving documents.
c.
Ensure matching of purchase order/receiving
documents/invoice occurs prior to payment
d.
Examine invoices for appropriate approval
for payment, cancellation at the time of
payment
and
deduction
of
applicable
discounts. How is this evidenced?
e.
Check mathematical accuracy of invoices
(and voucher package).
f.
Trace invoices to the Account Payable
subsidiary ledger (and G/L), noting that
account distribution, vendor name, etc.,
agree with that shown on the invoice. How is
this evidenced?
g.
Vouch to see if terms of payment are being
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met in order to take advantage of Discounts,
Trade Credits, etc.
h.
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
For non purchase order invoices selected,
scrutinize for propriety. Where appropriate,
review contracts, leases, or other underlying
support. Enquire as to why purchase orders
were
not
look
for
mitigating
controls.
Consider reasonableness.
i.
For any freight bills in selection, ascertain
that they were reviewed for reasonableness
and
investigated
further
with
persons
knowledgeable in traffic and distribution
practices prior to payment.
2.
If credits are taken prior to receiving a
suppliers credit note, select ____ credits for
returned goods.
a.
Examine underlying evidence of reason for
return, correspondence with vendor and
acceptance by vendor.
b.
Ensure matching of purchase order/receiving
documents/invoice occurs prior to payment
c.
Trace the debit to the accounts payable
subsidiary ledger.
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d.
For inventory material returns, trace to
posting of (units and financial) perpetual
inventory records.
_________
_________
are maintained
_________
_________
3.
General Internal Controls
_________
a.
Examine open files of uncompleted purchase
e.
Ascertain whether separate files of returns
orders and inquire into reasons for old or
unusual items.
b.
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
Review controls over Purchase Orders (both
used and unused). Are Purchase Orders
adequately documented and controlled?
c.
Examine purchasing department files for
evidence
of
vendor
selection
such
as
competitive bidding and/or accumulation of
vendor performance information
d.
Ensure quotations and tenders received are
reviewed and updated regularly.
e.
Ensure that buyers have signed Conflict of
Interest
statements.
rotated regularly?
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Are
buyers
duties
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f.
Performed
Work paper
By
Reference
Observe cancellation of vouchers currently
being paid and disposition of signed checks.
Is segregation of duties adequate?
g.
_________
_________
_________
_________
_________
_________
_________
_________
Ensure part deliveries or payments against
one purchase order are adequately recorded
and controlled.
h.
Review procedures for updating Master
Vendor File. Are all changes authorized?
How is this evidenced? Are all changes fully
documented?
i.
Obtain and review monthly reconciliations of
Accounts Payable (open item listings) to the
General
Ledger.
Ensure
adequate
segregation of duties exist. Are the monthly
reconciliations
authorized
by
senior
management. How is this evidenced?
j.
By
comparing
budgets
and/or
expense
account accumulations for the current and
prior
period,
determine
overall
reasonableness of amounts expended to
date by relating the nature of expenditure to
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levels
of
business
activity
and
other
operating conditions. Investigate meaningful
variations (or lack thereof) between periods.
_________
_________
4.
Accounting Cutoff
_________
_________
a.
Obtain an open item listing as of the audit
verification date:
•
Test select balances by reference to
supporting invoices. (This test should be
performed on a limited basis to ensure
the integrity of the accounts payable
balance as of the audit verification date.)
•
Test
accounts
payable
trial
balance
amounts against vendors’ statements to
establish that recorded liabilities are
correctly stated. Are suppliers statements
reconciled monthly?
f.
_________
Performed
Work paper
By
Reference
Observe cancellation of vouchers currently
being paid and disposition of signed checks.
Is segregation of duties adequate?
g.
_________
_________
_________
_________
Ensure part deliveries or payments against
one purchase order are adequately recorded
and controlled.
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h.
Review procedures for updating Master
Vendor File. Are al changes authorized?
How is this evidenced? Are all changes fully
documented?
_________
_________
_________
_________
variations (or lack thereof) between periods.
_________
_________
4.
Accounting Cutoff
_________
_________
a.
Obtain an open item listing as of the audit
i.
Obtain and review monthly reconciliations of
Accounts Payable (open item listings) to the
General
Ledger.
Ensure
adequate
segregation of duties exist. Are the monthly
reconciliations
authorized
by
senior
management? How is this evidenced?
j.
By
comparing
budgets
and/or
expense
account accumulations for the current and
prior
period,
determine
overall
reasonableness of amounts expended to
date by relating the nature of expenditure to
levels
of
business
activity
and
other
operating conditions. Investigate meaningful
verification date:
•
Test select balances by reference to
supporting invoices. (This test should be
performed on a limited basis to ensure
the integrity of the accounts payable
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balance as of the audit verification date.)
•
Test
accounts
payable
trial
balance
amounts against vendors’ statements to
establish that recorded liabilities are
correctly stated. Are suppliers statements
reconciled monthly?
b.
_________
Performed
Work paper
By
Reference
A review should be performed of subsidiary
Accounts Payable ledger entries recorder
after the cut-off date for any unrecorded
liabilities which existed as of the cut-off.
Consider in relation to the policy on internal
controls for reporting of accruals:
c.
_________
_________
_________
_________
_________
_________
Review receiving records to ascertain that all
merchandise received prior to the cut-off
date has been paid for or reflected in the
accounts payable ledger.
d.
Inquire of responsible officials if they have
any knowledge of unrecorded or undisclosed
contingent liabilities or adverse purchase
commitments.
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PURCHASE & PAYABLES
Yes/No
Comment
many locations/systems/accounts are used?
_________
_________
a.
Petty Cash
_________
_________
b.
A/P system checks
_________
_________
c.
Manual checks
_________
_________
d.
Wire Transfer
_________
_________
e.
Other
_________
_________
2.
How many different Purchasing functions
exist ?
_________
_________
Do all business units have the same
_________
_________
purchasing function?
_________
_________
_________
_________
_________
_________
_________
_________
1.
a.
Of the different methods of distribution, how
3.
Is there a receiving department for:
_________
_________
a.
All business units?
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
4.
Where is the supporting documentation filed
specifically purchase orders and receiving
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reports?
_________
_________
5.
Are credits issued for returned goods for:
_________
_________
a.
All the business units?
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
_________
6.
Has all merchandise received prior to the
cut-off date and not paid for is reflected in the
accounts payable ledger?
7.
Do you have any knowledge of unrecorded
or
undisclosed
contingent
liabilities
adverse purchase commitments?
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