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CHAPTER 7:
PURCHASES SYSTEM
Instructor: Assoc.Prof. Doan Thanh Nga, CPA (Australia)
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CHAPTER 7 LEARNING OBJECTIVES
– Describe the business functions in purchases system
– Understand risks and control objectives; controls and apply test of
control in each stage:
+ ordering
+ goods inward and recording of invoices
+ payment
– Identify the deficiencies of purchses system.
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BUSINESS FUNCTIONS IN PURCHASES SYSTEM
There are three main stages in purchases system
1. Ordering
2. Goods inward and recording of invoices
3. Payment
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1. ORDERING
2. GOODS INWARD AND
RECORDING OF INVOICES
3. PAYMENT
PURCHASES SYSTEM
Identify Risks
Controls
Tests of Controls
Management
Auditors
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Purchases System
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Ordering
– Purchase
requisitions
– Purchase Orders
Goods inwards and
recording of invoices
Goods inwards:
– Goods received records
Recording invoices:
– Invoices (from supplier)
– Nominal ledger accounts
Return of goods:
– Purchase return notes
– Credit notes (from
supplier)
Cash
payments
–Cheque
– Bank transfer
– Remittance advice
– Supplier statements
(from supplier)
– Bank reconciliation
Purchases System – documents
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1. ORDERING
•Organisations must monitor purchases carefully in order to maintain the
required amount of inventory for the business needs (manufacture, retail,
wholesale etc) but equally, it needs to ensure that the best price is achieved.
Often buying items in bulk can result in higher discounts than when a lower
quantity is ordered, however, this may have an adverse effect on the cash flow.
•There is also the risk that a member of staff purchases items for their own
private use using business funds.
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1. ORDERING (cont.)
Tests of controlsControlsRisks
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Review a sample of orders for evidence
that the purchase requisition was
authorized and the goods are for
business use.
•Check a sample of purchases to
•Orders should only be raised on
receipt of an authorized purchase
requisition which is approved by
the department manager.
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