How would you safeguard your client against the payment for fictitious purchases

Auditing and Assurance Revision Questions and Answers

Answer:
The auditor has to be very cautious while verifying the purchases that no payments have been made for the fictitious purchases. For this purpose, he may have to take the following actions:
i) He should examine first the internal control system in connection with purchases and satisfy himself with regard to its effectiveness.
ii) He should ensure that before passing the invoices for payment, they are checked with the original order, with goods received book and the stock records.
iii) He should inspect the invoices and see that the authorities responsible for passing them for payment have duly checked them and initialed.
iv) He should test check the invoices to see that dates given in the invoices are for the period concerned and they have been addressed in the name of the client.
v) He should also compare a number of invoices with the records in the goods received book and stock records.
vi) He can make physical verification of the goods purchased, if a part of it is still in the stock.
vii) He should also compare the supplier‟s statement with the supplier‟s account.
viii) Postings in the various suppliers‟ accounts should also be checked and compared with the statement received from them.



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