Page 182 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes should see that the client pays for only those goods which have actually been ordered and
received. Before the auditor begins his work, he should examine the internal check system
regarding the purchase on credit, returns outward, etc.
9.3.1 Internal Check as regards Purchases

The system of internal check will depend upon the size of the business and the staff available. If
auditor finds a bad or inefficient system the auditor should exercise great care exhaustively the
purchase book and the ledger. Whenever goods are required in a particular department, the
head of such a department should send the ‘Purchase Requisition’ which should show the quantity,
quality, if possible the price of the maximum price at which they may be purchased, the time by
which the goods must be supplied, etc., to the Purchase department which should invite tenders
or quotations from suppliers.
The auditor should inquire about the procedure for opening and acceptance of the tenders.
A responsible officer in addition to the storekeeper should be present when the goods are
received and unpacked to see the accuracy of the quality and quantity of the goods.

9.3.2 Procedure of Good Internal Check regarding Purchase

1. All the orders sent out should be recorded in the Purchase Order Book which should have
two carbon copies. One to be sent to the supplier of the goods and the other to be retained
for reference purpose.
2. When the goods, are received the gatekeeper or the storekeeper should make a record in
the Goods Inward Book after having check the quantity, weight etc.
3. The invoice should then be checked with the Goods Inward Book maintained by the
storekeeper and the delivery note, if any, to see that the goods received are correctly
recorded in the Stock Register, according to the invoice.
4. Another clerk should check the invoice regarding calculation, etc.
5. After this, the invoice should be sent to the head of the department who placed the order
for the goods to see that the prices and qualities etc., are correct.
6. The departmental head will then pass over the invoice to the clerk who will record the
same in the Purchase Book.
7. Every Person who has to deal the invoice and the goods should initial the invoice.

Task Make list of items to be included under internal test checks for vouching trading
transactions.

9.3.3 Duty of an Auditor in Connection with Credit Purchase

After having satisfied himself that there is a good internal check system regarding the
purchase, the auditor should now proceed to vouch the Purchase Book. While examining
the invoice, the auditor should pay attention to the following points:

1. Whether the invoice is in the name of his client.
2. Who is authorized to place orders for Goods?

3. The date of invoice should relate to the period under review.

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