The following are internal control procedures found in the purchases and payment process of your auditee, Integrated Measurement Systems Inc.
For each control procedure:
a. Explain the type of control that is being applied.
b. Identify the control objective(s) that the control procedure meets.
c. Describe in detail one test of controls the auditor could perform to test the effectiveness of the control.
Purchase requests from operating departments are authorized by the appropriate person in the requesting department.
The purchasing clerk verifies that there is a signature on the purchase request (PR) and then issues a pre-numbered purchase order (PO) for the items required. The purchasing clerk retains copies of the PR and the PO and files them by PO number.
The purchasing manager reviews the PO to see whether the purchase request is authorized, and, if so, approves it and forwards it to the buyer.
The Buyer must select a vendor from a pre-approved list for all POs over $5000. For POs under $5000 the Buyer can select any vendor.
The Receiver who accepts the goods into the warehouse verifies that the quantity received matches the bill of lading (BL), and signs on behalf of Integrated Measurement
Systems for receipt of the goods listed on the BL. If there is a discrepancy in the quantity received, the receiver does not sign the BL; the BL is sent to the Buyer to resolve the problem with the vendor.
The purchasing clerk matches the signed BL with the filed copies of the PO and PR.
The following are internal control weaknesses found in the purchases and payment process of your auditee, Integrated Measurement Systems.
For each control weakness:
d. Describe the control risk that exists because of the weakness—what could go wrong?
e. Explain whether a monetary financial statement misstatement could result because of the weakness, and, if so, what it would be.
f. Describe in detail the impact the weakness will have on your other audit procedures.
Control Weakness 1
The purchasing clerk does not verify that the PRs are authorized by an appropriate person in the operating department, but only checks that there is a signature on the document.
Control Weakness 2
Access to the warehouse is not controlled and anyone can enter and leave anytime.
Control Weakness 3
The receiver does not match the BL to an authorized PO.