Reference no: EM133124284

Question - Reject Pty Ltd is a major manufacturer of industrial machinery. The auditor has identified its purchasing and payments system including

The accounts payable department checks that there is a purchase requisition, purchase order and receiving record for each supplier invoice and then approves it for payment.

The accounts payable department prepares a pre-numbered disbursement voucher and forwards it along with the supplier's invoice, purchase requisition, purchase order and receiving record to the financial accountant.

The financial accountant prepares a cheque for each supplier, signs the cheque and records it in the cash disbursements journal. The cheque is immediately mailed to the supplier. Supporting documentation is returned to accounts payable for filing.

Required -

1. Identify internal control weaknesses in Reject's internal controls based on available evidence.

2. What sort of prevent control could be used to deal with the problems faced by Reject Ltd.? Explain how the control would work.

3. During this year, assume the auditor identified two transactions of fraudulent payments by cheque, what are possible explanations for this occurring that the auditor must consider?

4. And what evidence could the auditor consider before concluding that the prevent control has failed?