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Summary Auditing 288/388 Perfect Cycles & Theory

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  • Course
  • Auditing 288/388
  • Institution
  • Stellenbosch University (SUN)
  • Book
  • Auditing Fundamentals in a South African Context

This summary includes: - Inventory & Production Cycle - perfect cycle theory - Bank & Cash Cycle - perfect cycle theory - Investment & Financing Cycle - perfect cycle theory - Salaries & Wages Cycle - perfect cycle theory

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Document information

  • No
  • Chapter 8 - chapter 10
  • May 26, 2020
  • 24
  • 2019/2020
  • Summary

Subjects

  • auditing 288
  • bacc
  • cycles
  • bank and cash cycle
  • salaries and wages cycle
  • inventory and production cycle
  • investment and financing cycle
  • stellenbosch university

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  • Stellenbosch University (SUN)
  • Auditing 288/388
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INVENTORY & PRODUCTION CYCLE
1. PLACING OF ORDERS
2. RECEIPT OF GOODS (RMs)
PURCHASES & PAYMENTS CYCLE
PURCHASES & PAYMENTS CYCLE 3. STORING OF RMS
PURCHASE REQUISITION
GOODS RECEIVED NOTE (GRN)
(informs the purchasing department what goods are needed)
• A pre-numbered purchase requisition made out by the • There should be a separate demarcated area for • RMs must be stored & protected until required in
production/factory manager (when goods are needed in receiving goods production
two-fold approved & signed by the head store manager • Two receipt clerks must receive the delivered inventory • Stock should be barcoded onto the perpetual inventory
• Details: description, amount, date & dept. • The supplier’s delivery note must be signed after the system
• Copies: following have been done: (QQD) o To ensure physical stock can be checked against
o Purchasing division- in order to request the goods o Details: on the delivery note from the supplier theoretical stock on a frequent basis (weekly) &
o Own records – as proof of goods requested must be compared with the delivered items & the there is a tracking system
• A purchasing clerk must prepare purchasing orders on a details on the purchasing order o The system should record: serial number, title,
prenumbered purchasing order o Goods that have not been ordered may not be director, description ß for smaller items
• Only a purchasing clerk may prepare purchasing orders if received • All RMs purchased & received must be stored &
he has received a purchasing requisition, signed by the o Quality aspects of the goods must be reviewed protected until needed in the production process, the
head storeman • The two receipt clerks must take out a prenumbered goods should be stored as follows:
• Purchasing orders must be prepared according to a list goods-received note (GRN) of which the details must o Stored in a separate isolated area
of approved suppliers agree with the supplier’s delivery note & the physical o Access to the material must be limited (only one
• If no satisfactory supplier, purchasing clerk must get goods received entrance from within the shop)
quotations before preparing the order • 6 Copies of the GRN should be generated: o Any doors or windows from the outside must be
• The purchasing manager must approve the purchasing o Accounting division - agreement with the invoice secured
order after has agreed the details with the approved & purchasing order o The shop must have security gate at the entrance
requisition & suppliers & he must sign o Accompanies the goods to the inventory store so that it only opens with a press of a button
• Purchasing orders exceeding a certain amount must also o Purchasing division – for comparison with located at the cashier’s counter. It must also have
be approved by the financial manager & signed outstanding purchasing orders an alarm system
• 5 copies of purchasing orders should be made: o Inventory clerk – for updating the inventory o The shop must be protected against fires & there
o Accounting division – agreement with the invoice records must be fire extinguishers & sprinklers on the
o Head storeman – to update list of outstanding o Own records – file with purchasing order to show premises
requisitions that order has been received o Authorised & signed documentation (requisition)
o Receipts division – ensure that only goods have o Supplier – if supplier has not provided a delivery required for the movement of the RMs.
been ordered are accepted note
o Supplier – to place the order • Goods received must be placed in safekeeping
o Own records – As evidence that the order has immediately
been placed • The receipt clerks must perform sequence checks &
• Outstanding purchase orders must be kept in a suspense follow up on all outstanding orders
file in the purchasing division & followed up regularly all • The inventory records must then be updates to record
orders are finalised timely new stock (RMs)

, 4. PRODUCTION CYCLE
b. Receipt of invent at c. Physical control over the inventory at the
a. Issuing Inventory from the central inventory WH to the branches:
branches branches
• Branch managers/manufacturing clerk must place an order at the central inventory • The branch managers • The branch manager must keep records of the
WH by making use of a pre-printed standard RM requisition (order form) must be responsible inventory on hand. These records must be updated with
• The RM requisition must be prepared in triplicate: for the receipt of the the issue note & sales invoice
o RM WH – to prepare the correct quantity & type of product for dispatching & inventory items from • The branch manager & sales assistant must frequently
to update their records regarding the movement of inventory the central WH hold inventory counts on a sample basis & compare the
o Accounting department – to update inventory records • With receipt the counted inventory per item with the quantity according
o Branch/ WH – as evidence of quantity & type of product requested branch manager must: to the inventory records
§ Must be pre-numbered, Contain the date of request, Authorised o Compare the • The internal auditor must perform inventory counts at
quality & the branches on a surprise basis & must compare the
signature of the branch manager, Indicate the branch name, Accurately
quantity of the physical inventory with the inventory records. The
explicate the quantity & description of the product
items with the branch managers must be held liable for any shortages
• The WH assistant at the central WH prepares the items for issuing to the issue note & • The storeroom of each branch must only have an
branch/factory on the basis of the RM requisition & completes a RM transfer note order form entrance from within the shop. Any doors or windows
(issue note) for the materials/products that must be issues o Initial/sign as must have security gates.
• A RM transfer note should be prepared in triplicate: evidence that it • Staff must have access to the storeroom, but it is very
o Branch/factory together with the items – branch can be sure of the quantity & has been important that staff make sure that no delivery people
type of materials issued to them checked & go into the storeroom
o Held at central WH – evidence of quantity & type of … issued to the branch corresponds • The shop must be protected against fires & have a
o Accounting Dept – after delivery in order to update inventory records. Copy • If there are any security gate with an alarm system
also serves as proof of delivery deviations between • Sales assistants must count the amount of items clients
§ Contain dispatching date; Must be pre-numbered; Contain the the physical items & want to buy & that they come out with the right
authorised signature of the WH reviewer after he compared it with the the documentation, it amount
order form received; Indicate branch name; QQD must be recorded on • The layout of the shop must be designed so that clients
• With dispatch, the security guard/head store manager must compare the items being the issue note a& must walk past the cashier before they leave
sent with the RM transfer note & must not allow that any items leave the premises signed by both the • A security guard must be appointed & all clients’
that do not appear on the documentation & sign as evidence from doing so deliverer & branch purchases must be compared with the cash register slip
• Daily basis – the WH reviewer of the central WH must check that all RM transfer manager & sales invoice before they may leave the shop
notes refer to & are supported by a valid authorised RM requisition • The branch manager • The staff’s packages must be examined when they leave
must keep the issue they do not walk out with inventory items
• Branch/production managers must compare their duplicate RM requisition with the
note & file it with the
RM transfer notes received with delivery on a daily basis
order form
• The WH reviewer & the branch/production managers respectively must review the
number sequence of RMs requisition & RM transfer notes & followed up on missing
numbers

, 5. TRANSFER TO FINSIHED GOODS STORE
a. Finished Goods Transfer b. Stock Records c. Cost System d. Determination & e. Additional (for that of a
Note Calculation of perpetual system)
production costs of
finished goods
• Record transfer of • Inventory records should • Unit costs determined by • Production reports • The stock should be barcoded
manufactured goods from be updated to reflect the a variety if methods (made up of the rather than maintaining A4 pieces
the production division to transfer by an o Processing costing calculations within them) of paper
the finished goods store independent accounting o Job costing provide information • The barcoded physical stock must
• A pre-numbered finished personal (accountant) o Standard costing concerning amount of be checked against the theoretical
goods transfer note must o Finished goods • Each method requires raw materials used in stock on a frequent basis (Weekly)
be issued in 3 fold by one should increase different ways of production, labour & have a tracking system, by the
of the production foremen o Work in Progress accumulating costs & required to produce sales assistant / branch managers
& must be authorised & decreases unit cost calculations goods, & allocation of • There should be a designated
signed by the production overheads accountant that should be
manager • Production cost will employed to keep record & update
• Details: depend on the system in the perpetual system, when stock
o The QQD use is received, sold, destroyed, etc.
o Date • Calculation of production This person should not have
o Department sent to costs must be checked & access to the stock
• Copies: authorised (signed) by • The re-order level should be put
o Finished goods store management into the system so that stock can
(whilst accompanying be reordered when the levels are
the goods) - can too low
match to the physical • There should be frequent stock
goods received counts, this must be done in
o Own records (factory) conjunction with an independent
-proof that the goods person & shortages/surpluses
have been transferred must be reported to the general
o Accounting manager for further investigation.
department - to The GM must also perform regular
update inventory surprise stock takes
records

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