Reference no: EM133017792

Question - You have been hired as an audit manager at Syafiq & Co, and you are currently evaluating purchase and disbursements system at Flamingo Sdn Bhd (FSB). FSB is a manufacturer of electrical products. It has factories all over Peninsular Malaysia and serves medium and large retailers. The company's financial year ends on 31 December 2020.

The invoice is matched to and filed with the appropriate receiving report when it is received by the accounts clerk, using the purchase order number marked on the invoice. On the receiving report, the invoice number is also noted. The invoice is compared to the original purchase order to ensure that the agreed prices and discounts were applied.

Invoices are entered into the purchases system in batches by the purchases ledger clerk. The invoices number and the total amount are entered on a batch control sheet. These information are compared to the system batch report before confirming the data for processing by the system. After the details have been entered into the system, each invoice is stamped as 'recorded'. On a monthly basis, the purchase ledger manager inspects the invoice file to ensure that all invoices have been recorded.

Suppliers are required to send monthly supplier statements, which the purchases ledger manager reconciles to the appropriate supplier's ledger account. The purchase ledger manager reconciles the purchase ledger to the purchase ledger control account on a monthly basis, and forward to accountant for review. Then, the purchase ledger manager sends a list of payments to the accountant. The accountant matches the payment information to the appropriate invoice and signs each invoice to authorise payment and prove that the cheque was written. When all invoices have been reviewed, the list of payments is signed by the accountant and forwarded to the cashier's office for disbursement. A second signatory is required for any payment exceeding RM20,000. The finance manager or the finance director must review and sign the payments. Weekly payments are made by the cashier's office via bank transfer. The invoices are returned to the purchase ledger team, who record the payment and file the invoices. It must be separated from invoices that have not yet been paid. On a monthly basis, the purchase ledger manager reviews the receiving report to ensure that invoices have been received and paid as scheduled.

Required -

(a) Briefly explain FOUR (4) internal control strengths in purchasing and disbursement system at Flamingo Sdn Bhd. 

(b) Discuss potential misstatement that might occurred if each of the controls stated in (a) were absent.