ALL FIVE questions are compulsory and MUST be attempted
You are the senior auditor in charge of the audit of Fitzgerald Ltd, which sells,services and repairs a wide rage of agricultural machinery.Your notes of the purchases system include a number of points that need tobe considered in the audit. These are as follows:1. Delivery notes accompanying goods are checked on arrival by the storesdepartment. Where there is no delivery note from the supplier, a goodsreceived note is completed by stores. Delivery notes and goods receivednotes are listed by stores and passed to the buying department forchecking against orders. Only the goods received notes are sequentiallynumbered.2. Purchase invoices are passed immediately upon receipt to the buyingdepartment to check for the receipt of goods and prices charged. If there is a query, the buying department holds the invoice until thematter is resolved. Invoices are then passed to the accountsdepartment for input to the accounting system.3. A grid stamp on the purchase invoices to record the checks made is notcompleted in every case.4. Invoices are approved for payment by the accounts department but,when a cheque is prepared, the invoice is not marked as paid.5. Reconciliation of supplier statements to the ledger balances is notcarried out on a regular basis; only the year-end statements areretained for the audit.
Required:(a) Identify the weaknesses in the above purchases system and foreach weakness(i) Explain the potential consequences to Fitzgerald; and(ii) Recommend a control to mitigate the weakness.
(b) Describe the audit procedures that you would perform in order toensure that(i) Trade payables are fairly stated in the financial statements;(ii) Cut off procedures in respect of purchases and payables areadequate.
Inventories are currently ascertained by physical count at each month andyear-end. In order to avoid the disruption caused by the monthly counts,management intend to introduce an inventory control system consisting of computerized inventory records supported by a system of continuouscounting.Management has acquired a software package that will integrate with theexisting purchase and sales ledger systems. Inventory movements will bedetermined from purchase and sales invoice details, which will be input byclerks in the general office. Terminals will be located in the warehouse toenable staff to access the inventory records and enter adjustments.