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Part B 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...

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Part B

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.

AssignmentQuestion is-

  1. Discuss the areas the auditor must understand in relation to the information systems relevant tofinancial reporting for an entity.

Answered Same DayFeb 01, 2022

Solution

Ayushi answered on Feb 01 2022
49 Votes
Answer:
Answer:
The audit of the information systems used by an entity is considered very important to understand each and every aspect of the audit and to check the true and fairness of these systems to form an opinion in the financial reporting process. The audit of information system includes the examination of all the policies and various operations being adopted and performed in the company. It is important that the controls of information technology are effective in protecting the assets of the entity and the integrity of data is ensured and is according to the goals of the entity and helps in achieving them. In order to conduct the audit of the information system of the entity, it is required to evaluate the application of the software, hardware, the resources of data and the people who are accessing the software (What is IT audit (information technology audit)? - Definition from WhatIs.com, 2022). It should be checked whether the procedures which were used in the process of developing the software were followed or not, proper controls are there in the system, for the purpose of maintaining the software adequate control should be there.
The areas to be considered by auditor for information systems:
1. The vulnerability of the system is measured: for the purpose of auditing or understanding the information system of an entity, it is required to first identify the vulnerability of the applications used by the entity. In case the applications are more vulnerable to the computer abuse...
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