Purchasing
1.For each of the following examples, select the type of internal control activity which it represents.Monthly management accounts are compared to budget and differences investigated.
A Authorisation
B Performance review
C Information processing
2. Numerical sequence checks are undertaken on goods received records.
D Authorisation
E Performance review
F Information processing
3. The auditor of Twickenham Ltd has identified the following deficiencies within that organisation’s
accounting system. For each deficiency, select the most likely consequence which might arise as a result of that deficiency.
Goods inwards are not checked.
A Accepting inferior quality goods
B False invoices could be paid
C Services received are not accurately recorded
Invoices are not checked to original orders.
D Accepting inferior quality goods
E False invoices could be paid
F Services received are not accurately recorded
5. The following describes processes which make up the purchases system at Hawthorns and Co.
For each process, select whether it represents a strength or a deficiency of the system.
Orders are placed by department heads, usually by telephone, when they determine a service is
required.
A Strength
B Deficiency
6. Invoices for services are checked against the service provider’s proof of delivery of service, which is
requested from every service provider.
C Strength
D Deficiency
7. Payments are made by direct transfer. The direct transfer list is authorised by the financial controller,
who checks the payments to supporting documents, such as the invoice or service agreement.
E Strength
F Deficiency
8. Redesign Ltd is a large property management company which makes use of the services of many
different contractors for building, design and decorating services.
Which two of the following internal controls are most likely to prevent services being used for the
private purposes of employees?
A Purchase orders are processed by the buying department following authorisation by the production director
B Purchase requisitions must be signed by two team members for any given project
C Purchase orders should only be placed with authorised contractors
D Purchase invoices are matched to authorised purchase orders
The organisational structure at Molyneux Ltd is as follows.
9. The production department is headed by Jack Frost, whose deputy is Tiny Tim. Jack Frost reports to
the managing director, Nicholas Clause. There are several other departments (sales and marketing, accounting, purchasing, human resources and internal audit).
Which one of the following statements reflects the ideal situation with regard to purchase ordering?
A Jack Frost and Tiny Tim should make purchase orders as production needs dictate.
B Jack Frost should make purchase orders, although Tiny Tim could make requisitions as
production needs dictate.
C Jack Frost and Tiny Tim should requisition materials as production needs dictate, but orders
should be placed by the purchasing department, having been authorised by the purchasing
director.
D Jack Frost and Tiny Tim should requisition materials as production needs dictate but orders
should be placed by the purchasing department, having been authorised by Nicholas Clause.
10. Grey Ltd has recently discovered that it has been paying invoices in respect of goods which hadbeen returned as faulty before acceptance. It is company policy to record goods only if they have
been accepted.Which one of the following controls would have prevented this from occurring?
A Matching of purchase invoices with goods received records
B Matching of purchase invoices with orders
C Comparison of supplier statements with payables ledger accounts
D Date stamping purchase invoices on receipt
11. The following are examples of deficiencies in the purchases system of Burns Ltd.For each example, select the type of internal control activity which would improve the system.
Errors have been made in the calculation of discounts receivable.
A Authorisation
B Physical controls
C Information processing
There has been increasing levels of theft from the main distribution centre.
D Authorisation
E Physical controls
F Information processing
12. The auditor has identified the following deficiencies within Rainer Ltd’s accounting system.
For each deficiency, select the most likely consequence which might arise as a result of that
deficiency.
Purchase of goods from unauthorised suppliers
A Payment to fictitious suppliers
B Purchase of inferior goods
C Prompt payment discounts not obtained
13. Purchase ledger clerks permitted to amend standing data on the payables master file
D Payment to fictitious suppliers
E Purchase of inferior goods
F Prompt payment discounts not obtained
14. Which three of the following are control activities relating to the purchases system?
A All orders are authorised by a senior staff member
B Blank order forms are kept in a secure location with restricted access
C All goods and services received are accurately recorded
D Order forms are sequentially pre-numbered
15. The following describes processes in the purchases system at Woggle Ltd.
For each process, select whether it represents a strength or a deficiency of the system.
New inventory is ordered over the telephone by the company buyer, who initiates orders herself and
maintains a record of telephone orders.
A Strength
B Deficiency
When goods are subsequently received, the buyer has sole responsibility for checking the quantity
of goods received to the record of telephone orders.
C Strength
D Deficiency
Invoices from suppliers are sent to the buyer for authorisation, before being forwarded to the
Accounts Department for entry into the accounting records and subsequent payment.
E Strength
F Deficiency