Reference no: EM132619940

As part of the 30 June 2020 audit of ABC Pty Ltd your audit partner has requested that you review and provide a corresponding report on the internal controls over ABC's purchases and accounts payable processes.

ABC manufactures a range of parts for computer hardware. The company's purchases and accounts payable procedures are as follows:

1. Purchase requisitions are made by production managers and given to the purchasing department. These may be made verbally or in writing.
2. The purchase requisition is then used by the purchasing officer to prepare purchase orders (PO). The purchasing officer uses her discretion to select a supplier from management's approved list.
3. If the order is over $20,000, the PO will be given to the purchasing manager to check and approve. The manager will use a unique code to authorise the PO and return it to the same purchasing officer.
4. If the PO is under $20,000, approval from the purchasing manager will not be required.
5. Following steps three or four, the purchasing officer will file one copy of the PO under date order in the purchasing department. A second copy will be sent to the Accounts Payable department and filed under the supplier's name. The third copy will be emailed to the supplier for processing.
6. When the order is received from the supplier, the receiving department clerk will check the order by weight. This will then be compared to the expected weight of the delivered items. If these values are the same, the delivery slip will be signed by the receiving clerk and taken with the inventory items to the inventory storeroom. If the delivery weight of the box and contents varies from expectations, it will be returned to the supplier. 
7. An inventory clerk then takes the delivery slip and the inventory items from the receiving clerk. 
8. The inventory clerk scans and emails the delivery slip to the accounts payable department. The accounts payable clerk compares the purchase order to the delivery slip for potential discrepancies.
9. The accounts payable clerk will give the delivery slip and the purchase order to the accounts payable manager to authorise payment if it is over $20,000. This requires the manager to input a unique code into the accounting software system to authorise.
10. Once authorised, payment is made.
11. If the order is under $20,000, the accounts payable clerk may make the payment.
12. The purchase order and delivery slip are then filed together under the supplier name.

Required:

Question 1: Identifies five (5) internal control strengths on which you would rely for your audit.

Question 2: Designs five (5) tests of control to evaluate the effectiveness of each control identified above, in (1).

Question 3: Identifies and discusses two (2) key financial statement assertions most at risk (support your answer with reference to information in the above narrative.

Question 4: Outlines the audit procedures you would undertake to cover the issues identified above, in (3).