Additional Questions Audit and Assurance

Question FITZGERALD CO
This scenario relates to four requirements.
You are an audit supervisor with Begum & Co. You are currently reviewing the interim audit
documentation of Fitzgerald Co, as well as preparing the audit programmes for the final audit.
Fitzgerald Co sells, services and repairs a wide range of agricultural machinery. In your review of
the documentation in relation to the purchase system, you have noted the following:
Delivery notes accompanying goods received are checked on arrival by the stores department.
Where there is no delivery note from the supplier, a goods received note (GRN) is completed by a
storeman. Delivery notes and GRNs are listed by a storeman and passed to the buying department
for checking against orders. Only the GRNs are sequentially numbered.
Purchase invoices, which are received by various individuals, are passed immediately to the buying
department to check for receipt of goods and prices charged. If there is any query, the buying
department holds the invoice until the matter is resolved. Invoices are then passed to the accounts
department for input into the accounting system.
A grid is stamped on purchase invoices to record the initials of the individuals performing the
various checks. Occasionally the grid stamp itself is omitted but this is rarely identified by staff.
Invoices are approved for payment by the accounts department but, when a bank transfer
payment is made, the invoice is not marked as paid.
Although Fitzgerald Co receives monthly statements from it main suppliers, they are not routinely
reconciled to the list of individual suppliers (payables ledger). Only the year-end statements are
retained for the final audit.
Changes to supplier details in the purchases master file can be undertaken by the purchasing clerk.
Requirements:
(a) Describe the auditor's responsibility to obtain an understanding of control
activities in an entity's system of internal control. (5 marks)
(b) State TWO control objectives of Fitzgerald Co's purchases system. (2 marks)
(c) Identify and explain SIX deficiencies in Fitzgerald Co's purchases system and
provide a recommendation to address each of these deficiencies. (12 marks)

Control deficiency Control recommendation

(d) Describe substantive procedures the auditor should perform to obtain sufficient,
appropriate audit evidence in relation to the following:
(i) trade payables at the year end; and (7 marks)
(ii) cut-off and completeness of purchases. (4 marks)
(30 marks)

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