LO $14-1,2,513-34.$ Simulation

The following flowchart depicts the activities relating to the purchasing, receiving, and

accounts payable departments of Model Company Inc. Assume that you are a supervising

assistant assigned to the Model Company audit.The following flowchart depicts the activities relating to the purchasing, receiving, andJoe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flow$-$

chart by making certain inquiries of the controller. He has concluded that the internal control

over purchasing, receiving, and accounts payable is strong and has provided the following list

of what he refers to as internal control strengths. Review his list and for each internal control

strength indicate whether you agree or disagree that each represents a strength. For those in

which you disagree, briefly explain why.

Internal Control Strengths Prepared by Joe Werell

Purchasing $,$ a$.$ The department head of the requisitioning department selects the appropriate supplier.

b$.$ Proper authorization of requisitions by department head is required before purchase orders

are prepared.

c$.$ Purchasing department makes certain that a low$-$cost supplier is always chosen.

d$.$ Purchasing department assures that requisitions are within budget limits before purchase

orders are prepared.

$e.$ The ad

accounts payable departments of Model Company Inc. Assume that you are a supervising

assistant assigned to the Model Company audit.

LO $14-3,5$

LO $14-2,6$

LO $14-1,2,5$

To

Accounts

Payable

To

Receiving

Dept.

Requisition$4$

P$.$O$\mathrm{.}4$

P$.$O$\mathrm{.}3$

Requisition$1$

P$.$O$\mathrm{.}2$

P$.$O$\mathrm{.}1$

Purchase Order$1$

$($Prenumbered$)$

From

Dept.

Head

Approved

Requisition

Form in

Duplicate

Assures Best Price

Is Obtained &

Request Is within

Budget Limit

Verifies Adequacy

of Vendor$$s Past

Record & Prepares

$5-$Copy

Purchase Order

To

Vendor

To

Dept.

Head

By

P$.$O$.$ #

By

P$.$O$.$ #

To

Accounts

Payable

Goods Rec$$d

& Counted

Independently

in Secure Facility

Prepares

$4-$Copy

Receiving

Report

Rec. Report$4$

Rec. Report$3$

P$.$O$\mathrm{.}4$

Receiving

Report$1$

$($Prenumbered$)$

Rec. Report$2$

From

Purchasing

Purchased

Order with

Quantity

Blocked Out

To

Purchasing

To Dept.

Head or

Quality

Control

To

General

Acc.

Matches $4$ Doc

& Recomputes

Math Accuracy of

Invoices

Compares Invoice

Quantity & Price

to P$.$O$.$ &

Rec. Report

Quantity

Approves &

Prepares $3-$Copy

Voucher

$($Prenumbered$)$

Received to Vendor

Reports &

Independently

Recommended

Monthly in

Current Accounts

Voucher$2$

By Vendor Pending

Invoice

Receiving

From

Vendor

From

Purchasing

Invoice

From

Receiving

Rec. Report$3$

Voucher$2$

Voucher$2$

Rec. Report$2$

P$.$O$2$

Invoice

P$.$O$\mathrm{.}4$

Requisition$4$

Requisition$2$

By

Voucher

Purchasing Receiving Accounts Payable

$.$Joe Werell, a beginning assistant, analyzed the flowchart and has supplemented the flowchart

by making certain inquiries of the controller. He has concluded that the internal control

over purchasing, receiving, and accounts payable is strong and has provided the following list

of what he refers to as internal control strengths. Review his list and for each internal control

strength indicate whether you agree or disagree that each represents a strength. For those in

which you disagree, briefly explain why.

Internal Control Strengths Prepared by Joe Werell

a$.$ The department head of the requisitioning department selects the appropriate supplier.

b$.$ Proper authorization of requisitions by department head is required before purchase orders

are prepared.

c$.$ Purchasing department makes certain that a low$-$cost supplier is always chosen.

d$.$ Purchasing department assures that requisitions are within budget limits before purchase

orders are prepared.

e$.$ The adequacy of each vendor$$s past record as a supplier is verified.

f$.$ Secure facilities limit access to the goods during the receiving activity.

g$.$ Receiving department compares its count of the quantity of goods received with that listed

on its copy of the purchase order.

h$.$ A receiving report is required for all purchases, including purchases of services.

i$.$ The requisitioning department head independently verifies the quantity and quality of the

goods received.

j$.$ Requisitions, purchase orders, and receiving reports are matched with vendor invoices as

to quantity and price.

k$.$ Accounts payable department personnel recompute the mathematical accuracy of each

invoice.

l$.$ The voucher register is independently reconciled to the control accounts monthly by the

originators of the related vouchers.

m$.$ All supporting documentation is marked $$paid$$ by accounts payable immediately prior to

making it available to the treasurer.

n$.$ All supporting documentation is required for payment and is made available to the

treasurer.

o$.$ The purchasing, receiving, and accounts payable functions are segregated.Post your responses to Parts A through O of this CPA simulation

For Parts A through O$,$ submit a table stating if you agree$/$disagree with Joe. Also, write a $100-$ to $200-$word memo explaining why you disagree with some of Joe$$s strengths