UTM Bar Chocolates limited employs ten salespeople in the Mauritius, each with the defined geographical area to cover. Each salesperson is supplied with the new car, changed every 4 years. At the end of each and every week, each sales person submits a claim on the pre-printed form for expenses with supporting vouchers. Expenses are on petrol, repairs and servicing of car, lunches and entertaining. Each claim is scrutinized by Mr. Jones who is the chief accountant of company. He determines that the claims are supported by vouchers. He clears any inconsistencies with the salespeople concerned and make out cheques for signature by 2 directors of company. The total amount paid out for salesperson’s expenditures by the company throughout the year ended 30 June 2008 was Rs. 3,200,000. The company made a profit in that year of Rs. 15 million.
(a) Describe the shortcomings of this system and suggest ways of enhancing the system.
(b) Describe tests of control and list test of control which the auditor would perform on this system.
(c) describe the substantive procedures that the auditor would perform on item ‘salesmen’s expenses’.
Internal control for purchase system comprises control objectives, control procedures and test of control.
(a) What are the control objectives for purchase of goods by business?
(b) What are the substantive tests to be applied on the purchase?