How to Evaluate Internal Controls for the Purchasing Process [Video]

Before you can test a client’s internal controls you first need to know which internal controls are in place. The auditor can identify the internal controls by asking the client’s employees to complete a questionnaire and by doing a walkthrough of the purchasing process. The walkthrough would involve following a purchase from the initial requisition all the way through to updating the accounts payable records and the general ledger. The auditor should also be sure to consider entity-level controls. For example: • Does the audit committee play an active role? • Does management have written policies and procedures for authorizing purchases? • Does management require authorized signatures for purchase requisitions and purchase orders? • Does management ensure that only authorized persons can make changes to vendor information? • Does management set dollar limits for purchases by different levels of employees? • Does management closely monitor days payable outstanding? In addition …