SPC Ltd is a major manufacturer of industrial machinery. When the stores department requires items to be purchased, they issue a three-part pre-numbered purchase requisition that needs to be approved by the stores manager. Copy 1 is sent to the purchasing department, copy 2 is sent to the accounts payable department and copy 3 is filed in the stores department. On receipt of an approved purchase requisition, the purchasing department issues a five-part pre-numbered purchase order. Copy 1 is sent to the supplier, copies 2 and 3 are forwarded to the receiving department, copy 4 is forwarded to the accounts payable department and copy 5 is filed in the purchasing department.
When goods are received, the receiving department just stamps ‘order received’ on its two copies of thepurchase order, which then forms its receiving record. One copy of the receiving record is filed in the receiving department and the other is forwarded to the accounts payable department. The accounts payable department checks that there is a purchase requisition, purchase order and receiving record for each supplier invoice and then approves it for payment. The accounts payable department prepares a pre-numbered payment voucher and forwards it, along with the supplier’s invoice, purchase requisition, purchase order and receiving record, to the financial accountant, who signs the payment voucher, completes the payment by bank transfer to the supplier and returns the supporting documents to the accounts payable department.
At the end of the month, the assistant accountant undertakes a sequence check of all pre-numbered documents. The financial accountant receives the monthly bank statement, prepares a bank reconciliation and investigates any reconciling items.
Discuss the areas the auditor must understand in relation to the information systems relevant tofinancial reporting for an entity.
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