Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large number of suppliers. As part of the interim audit work four weeks prior to the company year’s end, you are testing the procurement/purchases systems, attending the inventory countand examining the sales and cash receipts.Purchasing/Procurement System When the quantity of a specific part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. Parts inventory is monitored by the store’s manager with a copy of the e-mail filed on the store manager's computer. Procurement department staff check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). The order is identified by a unique order number with a copy of the EDI order filed in the order database by the computer system. When goods are received at Carosel, the stores clerk confirms that the inventory agrees to the delivery note. The clerk also checks the order database to ensure that the inventory were in fact ordered by Carosel since delivery is refused where goods do not have a delivery note. The order in the order database is updated to confirm receipt of goods, and the perpetual inventory system updated to show the receipt of inventory. The physical goods are added to the parts store and the paper delivery note is stamped with the order number and is filed in the goods inwards department. The supplier sends a purchase invoice to Carosel using EDI; invoices are automatically routed to the accounts department. On receipt of the invoice, the accounts clerk checks the order database, matches the invoice details with the database and updates the database to confirm receipt of invoice. The invoice is added to the purchases database, where the purchase day book (PDB) and suppliers individual account in the payables ledger are automatically updated.Attending the Inventory countOn the day of the inventory count, you attended site 4 at Carosel. You observed the following activities: Pre-numbered count sheets were being issued to client's staff carrying out the count. The count sheets showed the inventory ledger balances for checking against physical inventory. All count staff were drawn from the inventory warehouse and were counting in teams of two. Three counting teams were allocated to each area of the stores to count, although the teams were allowed to decide which pair of staff counted which inventory within each area. Staff were warned that they had to remember which inventory had been counted. Information was recorded on the count sheets in pencil so amendments could be made easily as required. Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets – which were numbered by staff as they were used. At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed.Sales and Cash Receipts Carosel has experienced substantial success, with customer numbers increasing by approximately 15% annually. Sales at Carosel are categorized as cash sales and credit card sales. All sales are recorded on a computer, including the amount of each sale and the parts issued. This information is electronically transferred to the accounts office. Cash collected from each office is counted by two accounts clerks and two security guards before being banked daily. The total cash is reconciled with the sales information transferred. The cash received is then recorded in the cash book and general ledger.Required1. What are the audit procedures that an auditor would normally carry out on thepurchases system at Carosel, explaining the reason for each procedure? 2.What are the audit procedures that an auditor will normally perform prior to attending the client's premises on the day of the inventory count?

Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large number of suppliers. As part of the interim audit work four weeks prior to the company year’s end, you are testing the procurement/purchases systems, attending the inventory countand examining the sales and cash receipts.Purchasing/Procurement System When the quantity of a specific part falls below re-order level, an e-mail is sent to the procurement department detailing the part required and the quantity to order. Parts inventory is monitored by the store’s manager with a copy of the e-mail filed on the store manager's computer. Procurement department staff check the e-mail, allocate the order to an authorised supplier and send the order to that supplier using Electronic Data Interchange (EDI). The order is identified by a unique order number with a copy of the EDI order filed in the order database by the computer system. When goods are received at Carosel, the stores clerk confirms that the inventory agrees to the delivery note. The clerk also checks the order database to ensure that the inventory were in fact ordered by Carosel since delivery is refused where goods do not have a delivery note. The order in the order database is updated to confirm receipt of goods, and the perpetual inventory system updated to show the receipt of inventory. The physical goods are added to the parts store and the paper delivery note is stamped with the order number and is filed in the goods inwards department. The supplier sends a purchase invoice to Carosel using EDI; invoices are automatically routed to the accounts department. On receipt of the invoice, the accounts clerk checks the order database, matches the invoice details with the database and updates the database to confirm receipt of invoice. The invoice is added to the purchases database, where the purchase day book (PDB) and suppliers individual account in the payables ledger are automatically updated.Attending the Inventory countOn the day of the inventory count, you attended site 4 at Carosel. You observed the following activities: Pre-numbered count sheets were being issued to client's staff carrying out the count. The count sheets showed the inventory ledger balances for checking against physical inventory. All count staff were drawn from the inventory warehouse and were counting in teams of two. Three counting teams were allocated to each area of the stores to count, although the teams were allowed to decide which pair of staff counted which inventory within each area. Staff were warned that they had to remember which inventory had been counted. Information was recorded on the count sheets in pencil so amendments could be made easily as required. Any inventory not located on the pre-numbered inventory sheets was recorded on separate inventory sheets – which were numbered by staff as they were used. At the end of the count, all count sheets were collected and the numeric sequence of the sheets checked; the sheets were not signed.Sales and Cash Receipts Carosel has experienced substantial success, with customer numbers increasing by approximately 15% annually. Sales at Carosel are categorized as cash sales and credit card sales. All sales are recorded on a computer, including the amount of each sale and the parts issued. This information is electronically transferred to the accounts office. Cash collected from each office is counted by two accounts clerks and two security guards before being banked daily. The total cash is reconciled with the sales information transferred. The cash received is then recorded in the cash book and general ledger.Required1. What are the audit procedures that an auditor would normally carry out on thepurchases system at Carosel, explaining the reason for each procedure? 2.What are the audit procedures that an auditor will normally perform prior to attending the client's premises on the day of the inventory count?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Carosel Limited is a specialty motor vehicle parts supplier, procuring parts from a large
number of suppliers. As part of the interim audit work four weeks prior to the company
year’s end, you are testing the procurement/purchases systems, attending the inventory count
and examining the sales and cash receipts.
Purchasing/Procurement System
When the quantity of a specific part falls below re-order level, an e-mail is sent to the
procurement department detailing the part required and the quantity to order. Parts
inventory is monitored by the store’s manager with a copy of the e-mail filed on the
store manager's computer.
Procurement department staff check the e-mail, allocate the order to an authorised
supplier and send the order to that supplier using Electronic Data Interchange (EDI).
The order is identified by a unique order number with a copy of the EDI order filed in
the order database by the computer system.
When goods are received at Carosel, the stores clerk confirms that the inventory
agrees to the delivery note. The clerk also checks the order database to ensure that the
inventory were in fact ordered by Carosel since delivery is refused where goods do
not have a delivery note.
The order in the order database is updated to confirm receipt of goods, and the
perpetual inventory system updated to show the receipt of inventory. The physical
goods are added to the parts store and the paper delivery note is stamped with the
order number and is filed in the goods inwards department.
The supplier sends a purchase invoice to Carosel using EDI; invoices are
automatically routed to the accounts department. On receipt of the invoice, the
accounts clerk checks the order database, matches the invoice details with the
database and updates the database to confirm receipt of invoice. The invoice is added
to the purchases database, where the purchase day book (PDB) and suppliers
individual account in the payables ledger are automatically updated.
Attending the Inventory count
On the day of the inventory count, you attended site 4 at Carosel. You observed the
following activities:
Pre-numbered count sheets were being issued to client's staff carrying out the count.
The count sheets showed the inventory ledger balances for checking against physical
inventory.
All count staff were drawn from the inventory warehouse and were counting in teams
of two.
Three counting teams were allocated to each area of the stores to count, although the
teams were allowed to decide which pair of staff counted which inventory within each
area. Staff were warned that they had to remember which inventory had been counted.
Information was recorded on the count sheets in pencil so amendments could be made
easily as required.
Any inventory not located on the pre-numbered inventory sheets was recorded on
separate inventory sheets – which were numbered by staff as they were used.
At the end of the count, all count sheets were collected and the numeric sequence of
the sheets checked; the sheets were not signed.
Sales and Cash Receipts
Carosel has experienced substantial success, with customer numbers increasing by
approximately 15% annually.
Sales at Carosel are categorized as cash sales and credit card sales. All sales are
recorded on a computer, including the amount of each sale and the parts issued. This
information is electronically transferred to the accounts office.
Cash collected from each office is counted by two accounts clerks and two security
guards before being banked daily. The total cash is reconciled with the sales
information transferred.
The cash received is then recorded in the cash book and general ledger.
Required
1. What are the audit procedures that an auditor would normally carry out on the
purchases system at Carosel, explaining the reason for each procedure? 2.What are the audit procedures that an auditor will normally perform prior to attending
the client's premises on the day of the inventory count?

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