Audit Manual 3

8/2/2019 Audit Manual 3

1/23

VI 31

Annex E

SAMPLE TRANSACTION TEST AUDIT PROGRAME

CASH RECEIPTS

A. TO CONFIRM THAT ALL CHAS RECEIVES AND ACCOUNTED FOR

1. Select certain receipt from throughout the year and check

a) Entry in the cashiers record

b) That the receipt is signed by the cashier and does not

contain any alternations or erasures.

2. Perform block sequence tests on copy receipts and inspect

original copy of cancelled receipts.

B. TO VERIEY CORRECTNESS OF ACCONTS RECORDING

3. Select cashiers records for certain days of the year and:

a) Vouch with copy receipts/cash sales invoice.

b) Check numerical sequences of receipts/cash sales invoices.

c) Vouch with bank deposit slips and ensure that all cash collected

deposited intact.

d) Check casts and cross-costs of cashiers records.

e) Check posting to control accounts.f) Check postings from copy receipts to subsidiary ledger

accounts.

g) Examine evidence that cashiers records have been

independently checked.

4. Scrutinize cashiers records for integrity of the numerical sequences of

cash receipts.

C. TO ENSURE ADEQUATE CONTROL EXERCISED OVER CASH

RECEIPTS

5. Observe that cash receipts kept in safe custody by a responsible

official.

6. Verify numbers of receipt pads printed during the year with printers

invoices and check to register of receipts.


2/23

7. Scrutinize register of receipts for evidence that new pads issued in

strict numerical sequence only in replacement for a completed pad

returned.

8. Physically verify unused receipt pads on hand and agree with register.

(If not already undertaken during cash count procedures.)


3/23

VI 31

Annex E

SAMPLE TRANSACTION TEST AUDIT PROGRAME CASH RECEIPTS

A. TO CONFIRM THAT ALL CASH SALES ARE PROPERLY ACCOUNTED

FORM

1. Select certain cash sales invoices and check.

a) Entry on the cashiers cash sales summary.

b) Approval and cashiers signature for receipt of the cash.

c) Prices, extensions and additions on the invoices.

d) Discharge of goods sold on the stock cards.

2. Perform block sequence tests on copy cash sales invoices. Inspect

original copy of cancelled invoices.B. TO VERIFY CORRECTNESS OF ACCONTS RECORDING

3. Select cash sales summaries for certain days of the year and:

a) Vouch with copy cash sales invoices checking analysis and

numerical sequences.

b) Examine evidence that summaries independently checked.

c) Check casts and cross-casts.

d) Check posting to subsidiary and control ledger accounts.

e) Check total cash takings with main cashiers receipt.

4. Scrutinize cash sales summaries for integrity of the numerical

sequences of cash sales invoices.

C. TO ENSURE ADEQUATE CONTROLEXERCISEE OVER CASH SALES

INVOICES.

5. Observe that sales invoices kept in safe custody by a responsible

official other than the cashier.

6. Verify number of cash sales invoices printed during the year with

printers invoices and check to register of cash sales invoices.

7. Scrutinize register of cash sales invoices for evidence that new

pads issued in strict numerical sequence only in replacement of

completed pads returned.


4/23


5/23

of time and will usually be largely incurred in advance of the

actual receipt of the goods.

Although costs will be incurred prior to the arrival of the

goods, delays will often occur before the receipt of the

actual invoices, particularly in the case of transit charges.

Care must accordingly be taken to ensure that all costs

relating to a particular order have been recorded before the

cost of the goods received is transferred to purchases. This

will be of particular significance at the year end which

provision will have to be made for costs for which invoices

have not been received, in order that goods in transit

accounts are closed to purchases in the period in which the

goods were received.

Import costs should, therefore, be charged to separate

goods in transit accounts until actual receipt of the goods

which the total cost will be transferred from goods in transit

to foreign purchases. A further factor of foreign purchases is

the on arrival goods will often be found to be missing due to

pilferage, or the cost of the goods should be claimed from

the insurance and debited to claim from the insurance and

debited to claims receivable, only the cost of those items

received in good condition being included in purchases.

Where the volume of foreign purchases is not great, they

may be more efficiently verified during the validation

procedures of goods in transit as reviewed in chapter IX

sections 3 rather than b undertaking transaction tests.

6.2 Objectives of Tests

The objectives of the audit of purchase transactions are to

ensure that:


6/23

- Only goods required by the client are ordered and such

orders are subject to proper checking and approval

procedures.

- Purchases reflect only goods that have actually been

received and taken into stock.

- The liability to suppliers for goods received is correctly

reflected in the accounting records.

6.3 Internal Control

The fundamentals of a sound system of internal control over

purchases are as follows:

6.3.1 Orders

Goods required should be requisitioned by the

department which requires them or central stores.

Such requisitions should be checked by the

purchasing department who will prepared a pre-

numbered purchase order after ruling prescribed

procedures regarding obtaining proforma invoices,

quotations or tenders. Purchase orders must be

approved by a senior official and adequate records

maintained so that orders not fulfilled can be

identified and necessary follow up action taken.

6.3.2 Goods received

Goods received should be checked by a storekeeper

with the appropriate purchase order and copy of

suppliers invoice or delivery order as to quantity and

description of the goods and a pre-numbered goods

receiving report prepared. Damaged or missing items

should be disclosed separately on the goods receiving

report and should not be taken into stock.

Recording of the quantities received on the stock

records should be made by someone other than the


7/23

storekeeper who received the goods and completed

the goods receiving report.

6.3.3 Suppliers Invoices

Suppliers invoices should be numbered consecutively

upon receipt and recorded in a register giving a

reference to the related purchase order number and

goods receiving report. The posting reference

whereby the invoice was entered in the accounting

records should also be shown. The numbering ad

recording of suppliers invoices in such a register will

facilitate reference and obviate the risk of their being

mislaid or omitted from the accounting records.

Suppliers invoices should be checked with the related

purchase orders as to quantity, description and price

and with the goods receiving reports as to quantities

received, before being approved by a responsible

official for entering in the accounting records.

Suppliers invoices should be cross-referenced to the

related purchase orders and goods receiving reports

and vice versa.

Good receiving reports and purchase orders for which

suppliers invoices have not been received should be

kept in pending files ad regular follow-up made as to

the reasons for the delays. This is particularly

significant at the year end in order to ensure that

purchases includes the cost of all goods that have

been received and taken into stock and vice versa.

6.3.4 Accounts Recording


8/23

Whatever the method of entering suppliers invoices in

the accounting records, they should be pre-listed to

determine the control account postings. The accounts

clerks involved in the posting to the subsidiary ledger

accounts should not have access to the control

accounts, the balances on which should be regularly

agreed with the total of the subsidiary account

balances.

Suppliers statements, where available, should be

checked with the subsidiary ledger accounts by a

responsible official and any differences immediately

followed up.

6.3.5 Foreign Purchases

The significant feature of foreign as compared to local

purchases is that there has to be an adequate system

of accumulating the cost of each order while it is in

transit and to ensure that the full cost of the goods

received, including all charges, is transferred to

purchases after the goods they have been taken into

stock. Effective procedures must be in operation to

ensure that insurance claims are made for items

received damaged or not received at all and that the

proportional cost of such items is charged to a claims

receivable account and not included in the cost of

purchases. Cost of good received must be computed

using a system that allocates the transport, customs,

insurance and other charges equitably to the

individual items.

6.4 Audit Procedures

Transaction tests of purchases will normally include the

following:


9/23

6.4.1 Orders

Ascertain by observation and reperformance that

purchases are only made on the basis of pre-

numbered purchase orders prepared from signed

requisitions and approved by a responsible official.

Check that the required procedures regarding

quotations or tenders are complied with and review

records of purchase orders to ensure that outstanding

orders are being followed-up.

6.4.2 Goods Received

Match goods receiving reports with related suppliers

invoices and purchase orders to ensure that goods

received were those ordered and invoiced by supplier.

Test check the recording of quantities and value of

goods received in the stores records and financial

stock cards. Ensure by sequence tests of the goods

receiving reports that purchases have been recorded

in the accounting records for all goods that have been

taken into stock.


Verify the validity of the accounts recording with

suppliers invoices observing that adequate control

exercised over suppliers invoices received and that

invoices agree with the purchase orders and goods

receiving reports. Check the recording in the

suppliers subsidiary ledger accounts and that the

quantities and values of purchases are recorded in the

stores records and financial stock cards.

6.4.4 Import purchases

Verify receipt of imported goods by reference to

goods receiving reports and vouch make up of total


10/23


11/23

VI

Annex G (1)

SEPARATION OF FUNCTIION

PURCHASES

SEPARATION OF FUNCTION

1. Is there separation of function between?

- Requisitioning of goods?

- Authorization of orders?

- Checking and receipt of goods?

- Checking of suppliers invoices for correctness and to ensure that

invoices have been received for all goods received and vice versa?

- The recording in the accounting records?

ORDERING

Control Objective To ensure that goods are only ordered after proper

authorization and that a record is maintained of pending orders.

1. Are goods required requisitioned by the department that required

them or central stores and signed by a responsible official?


12/23

2. Are orders evidenced by pre-numbered purchase orders approved

by a responsible official after tenders, solicitation of quotations,

etc.?

3. Are adequate records maintained to identify orders fulfilled and

not fulfilled?

4. Are there adequate follow-up procedures in respect of long

outstanding orders?

GOODS RECEIVED

Control Objective To ensure the proper checking and recording of

goods received.

1. Are goods received checked das to condition and as to quantity

and description with the appropriate purchase order, before being

taken into stock?

2. Are pre-numbered goods receiving reports prepared by the

storekeeper for all goods received?

3. Are broken and damaged items separately identified on the goods

receiving report?

VI 38

Annex G (2)

4. Are such items kept physically separate pending survey by the

Insurance Corporation?

5. Is there an adequate system for ensuring that damaged and

missing items are claimed?

6. Is the recording on the stock cards of goods received made by

someone other than the storekeeper who received the goods?

ACCOUNTS RECORDING

Control Objective To ensure that goods received are correctly recorded

as purchases and that liability thereon to suppliers is reflected in the

accounting records.

1. Are suppliers invoices immediately numbered consecutively upon

receipt and recorded in a register of purchase invoices?


13/23

2. Is a reference to the appropriate purchase order and goods

receiving report included both in the register and on the invoice

itself?

3. Are there adequate procedures for identifying and following-up

goods receiving reports for which suppliers invoices have not been

received?

4. Are invoices checked with purchase orders for correctness of

goods supplied and price?

5. Are invoices checked with goods receiving reports for correctness

of goods received?

6. Are invoices approved by a responsible official for recording only

after procedures 4 and 5 above have been completed?

7. Are approved invoices pre-listed to determine the control account

total before ledger posting is undertaken?

8. Are adequate cut-off procedures in operation to ensure that all

goods received before the year end is included as purchases?

9. Are subsidiary ledger accounts balances of purchases and

suppliers regularly agreed with the control accounts by a

responsible official?

10. Are suppliers accounts checked and agreed with suppliers

statements and immediate enquiry made into any differences?

11. Are the values of damaged or lost items separated from purchases

and debited to separate claim accounts?

12. Are such claim receivable accounts subject to regular review and

follow-up?

VI 39

Annex G (3)

IMPORT PURCHASES

Control Objective To ensure that proper records are maintained of

goods in transit and that the cost of goods received is transferred to

purchases.


14/23

1. Are separate subsidiary ledger accounts maintained

for every order in transit to which all payments and expenses

relating to the order are debited?

2. Are the balances on such accounts regularly agreed

with the control account balance by a responsible official?

3. Is the full amount of the letter of credit debited to

goods in transit and the unpaid margin credited as a liability when

goods ordered have been shipped?

4. Is the cost of goods imported only transferred to

import purchases on the evidence of a goods receiving report?

5. Is the completeness of costs including accrual for

transit expenses, reviewed by a responsible official before such

transfer is made?

6. Is the cost of damaged or lost items segregated and

debited to claim receivable accounts?

7. Are goods in transit accounts subject to regular

review by a responsible official and full enquiry made into all long

outstanding orders?

8. Are separate files maintained for each order

containing all relevant documentation?

9. Is an adequate costing system in operation for

costing individual items received?

10. Are adequate cut-off procedures in force to ensure

that, at the year end the full cost of all gods received has been

included as purchases?

VI 40

Annex H (1)

SAMPLE TRANSACTION TEST AUDIT PROGRAMME

PURCHASES

A. ORDERS


15/23

TO CONFIRMTHAT PURCHASES ONLY MADE ON THE BASIS OF

APPROVED PURCHASE ORDERS.

Select certain purchase orders from throughout the year and

check:

1. Detail of goods ordered with the signed

requisition of central stores or the department requiring the

goods.

2. Approval of the purchase order by a

responsible official after compliance with clients procedures

regarding tendering, solicitation off quotations, etc.

3. Record of details of purchase order n register

of purchase orders.

4. Scrutinize record of purchase orders and

enquire into unfulfilled items.

B. GOODSRECEIVED

TO CONFIRM THAT GOOD RECEIVED AND TAKEN INTO STOCK ARE

REFLECTED AS PURCHASES

1. Select certain goods receiving reports from throughout the year

and check.

a) Signature of storekeeper for receipt of the goods.

b) Reference to the purchase order and that the goods receiving

report number recorded in the register of purchase orders.

c) Reference to suppliers invoice or goods in transit number and that

the goods receiving report number recorded in the register of

suppliers invoices.

d) Quantities and description of goods received with purchase order

and suppliers invoice.

e) Posting of quantities of goods received to stock records.

f) Posting of quantities and cost of goods received to the financial

stock cards (via costing sheets in the case of import purchases).


16/23

2. Verify posting of related suppliers invoices to purchases and

suppliers subsidiary ledger accounts.

3. Check inclusion of such invoices in control total and verify control

accounts posting.

4. If goods received resulted from a foreign purchase check transfer

of cost of goods from goods in transit account to purchases.

VI 41

Annex H (2)

5. If any goods short landed or damaged check cost included on a

claims form or debit notes.

6. Check posting of claims form or debit note to claim receivable or

supplier account as applicable.

7. Undertake sequence tests on goods receiving reports ensuring

that all referenced to a suppliers invoice or goods in transit

number.

C. ACCOUNTS RECORDING

TO CONFIRM THAT AMOUNTS RECORDED AS PURCHASES WERE AS

ORDERED AND ARE REPRESENTED BY GOODS RECEIVED AND

TAKEN IN TO STOCK.

1. Select certain local purchases from the accounting records, and:

a. Vouch with the suppliers invoice, checking approval.

b. Check details of the quantities and prices of the goods per

suppliers invoices with purchase orders.

c. Check details of the quantities of goods per suppliers invoices

with goods receiving reports.

d. Check posting of suppliers invoices to suppliers subsidiary ledger

accounts

2. Select certain import purchases from the accounting records, and:

a. Check cost with total of goods in transit account.

b. Scrutinize goods in transit account for completeness and vouch as

necessary.


17/23

c. Verify receipt of goods with goods receiving reports.

d. Check costing sheets and test check posting of quantity and value

of individual items to financial stock cards.

3. Scrutinize register of suppliers invoices to ensure that all invoices

referenced to a purchases order and goods receiving report.

4.

D. IMPORT PURCHASES

TO CONFIRM THAT GOODS IN TRANSIT ACOUNTS PROPERLY REFLECT

ALL EXPENSES RELATING TO IMPORTS AND THAT THE FULL COST IS

TRANSFERRED TO PURCHASES ON RECEIPT OF THE GOODS

Select certain goods in transit accounts for goods received during the

year and check:

1. Validity of items debited with supporting documentary evidence.

2. Completeness of G.I.T. account i.e. that all expenses such as

insurance; charges; full amount of L/C or IBC; transport and transit

charges included.

VI 42

Annex H (3)

3. Goods receiving reports to substantiate transfer of cost of import

to purchases.

4. Posting to purchases account, subsidiary and control.

5. Details of goods received with suppliers invoice and purchase

order.

6. Costing of goods received via costing sheets.

7. Posting of quantities received from goods receiving reports to

stores records.

8. Posting of quantities and cost of goods received to financial stock

cards.

9. Posting of cost of goods short landed or damaged to claim

receivable account via claims form or debit notes.

VI 43


18/23

7. Transaction Tests Cheque Payment

7.1 Introduction

Payment by cheque is the most common means of settling

obligations for goods and services obtained and consequently a

substantial part of the disbursements recorded in an enterprises

accounts will be by this means.

7.2 Internal Control

The control objectives of a sound system of internal control

over cheque payments is that disbursements from bank

accounts should be made only in respect of valid transactions.

7.2.1 Cheque books must be kept in safe custody by a responsible

official.

7.2.2 The numbers of cheques received from the bank should be

immediately recorded in a cheques register. When each

cheque is signed the following information should be entered in

the appropriate column.

- Date of the cheque.

- Name of the payee.

- Reason for payment.

- Amount of cheque.

- Cheque payment voucher number

Such a register provides a permanent record of both the un

issued cheques that should be on hand at any time and

immediate reference to any cheque that has been issued.

7.2.3 Spoiled or voided cheques should be cancelled and retained in

the cheque book as evidence that they have not been issued. If

already signed, the signatures must be obliterated or torn-off

to reduce the opportunity of their being fraudulently copied.

7.2.4 Dual signatures should be required on all cheques and

signatories are subject to defined limits of authority.


19/23

7.2.5 The signing of cheques in blank should be specifically

prohibited.

7.2.6 Cheques should preferably be made payable to a person,

company or enterprise and crossed A/C payee only to ensure

that only the designed beneficiary can receive payment and

fraudulent endorsement is not possible.

7.2.7 Cheque payments should be supported by pre-numbered

cheque payment vouchers accompanied by full supporting

documentary evidence as to the validity of the payment. The

cheque payment voucher and supporting documents should be

checked and approved by a responsible official be for

preparation of the cheque. Persons who approve documents for

payment should not be involved in

- The handling or recording of cash.

- Posting to the accounting records.

- Approving transactions which originate

disbursements.

7.2.8 The payment voucher and supporting documentary evidence

should be checked and initialed by both cheque signatories

who should also complete and initial the cheque book

counterfoil. The payment voucher and supporting documents

must be stamped PAID at the time of signature of the cheque

to prevent fraudulent re-use.

7.2.9 Persons who sign cheques should not be involved in the

handling or recording of cash, posting to the accounting

records, approval of documents for payment or the initiation of

transactions which originate disbursements.

7.2.10 Accounts coding on cheque payment vouchers should be

verified by a responsible official before posting to the ledger

accounts is made.


20/23


21/23


Examine payment vouchers for evidence that accounts

codlings have been checked and vouchers posted and test

check actual posting of vouchers to subsidiary and control

ledger accounts.

A sample audit programme for cheque payments is included as Annex J

to this Chapter.

INERANL CONTROL QUESTIONNAIRE

CHEQUE PAYMENTS

SEPARATION OF FUNCTION

Are persons who sign cheques and/or approve vouchers for payment

prohibited from:

- Having access to cash or petty cash?

- Recording cash received?

- Posting to the cash or accounting records?

- Approving transactions which initiate disbursements?

CUSTODIAL

Control Objectives To ensure that proper safeguards exist over the

custody of cheques.

1. Are unused cheques kept in safe custody by a responsible official?

2. Are cheque numbers entered in a cheques register when received

from the bank?

3. Are details of each cheque issued entered in the register when it is

signed?

4. Are spoiled and voided cheques marked Void, the signatures

cancelled and the spoilt cheque retained in the cheque book?

APPROVAL AND SIGNATURE


22/23

Control Objective To ensure that cheques and bank transfers are only

prepared and issued for valid transactions.

1. Are dual signatures required on all cheques?

2. Are cheque signatories subject to established limits of authority?

3. Is the split up of payments to avoid approval by higher authority

prohibited?

4. Is the signature of blank cheques specifically prohibited?

5. Are all cheque payments supported by pre-numbered payment

vouchers?

6. Are payment vouchers accompanied by full supporting

documentary evidence as to the validity of the payment?

7. Are such documents checked and approved for payment before

being presented to the cheque signatories?

8. Do both cheque signatories check the payment voucher and

supporting documents for correctness and initial them?

9. Are cheque payment vouchers and supporting documents

stamped PAID either before, or at the time of signature of the

cheque?

10. Are cheques always crossed before issue?

11. Are cheque counterfoils completed with details of the payment

and a reference to the payment voucher number?

12. Do both signatories initial the cheque book counterfoil?

ACCOUNTES RECORDING

Control Objective To ensure that cheque payments are fully and

correctly entered in the accounting records.

1. Is the accounts coding independently checked before posting?

2. Is posting made independently to bank control and detailed

accounts and such balances regularly agreed?

BANK RECONCILIATIONS

Control Objective To ensure that bank records are independently

reconciled with the bank statements.


23/23

1. Are all bank accounts reconciled monthly by someone other than

the cashier or a cheque signatory?

2. Are bank reconciliations reviewed and approved by a responsible

official?

3. Is immediate follow-up made with the bank regarding outstanding

deposits and debits and credits shown in the bank statements for

which advices not recorded?

Documents

Audit Manual 3