Strengths and weaknesses of purchase and payment system in auditing

AUDITING ASSIGNMENT
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Contents
(b) Strength and weaknesses of purchase and payment system......................................................3
(c) Tests to be performed to test the controls on strengths of payment and purchasing procedure.4
(d) Likely impact of the weakness on the audit risk and tests.........................................................5
References........................................................................................................................................6
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(b) Strength and weaknesses of purchase and payment system
Strengths-
1. Set policies and procedures
The company is following a fixed structure for purchase and payment system. There are set rules
and procedures that are followed by each and every individual involved in this purchase and
payment system. Set policies and procedure for any activity in business is very helpful for an
organization as new employees can also effectively conduct any of such activity.
2. Stock level order
Another advantage of purchasing system of stock is that warehouse management has effective
stock level. If the stock goes under this level then warehouse management will make an advance
order of stock for 3 months. With the help of this policy, the company will never face a situation
of stock out and supply of their products will never go under their demand. In addition to that
constant supply in the market will also help in making a reputation of the company in the market
(Young & Coleman, 2010).
3. Segregation of duties
Segregation of duties for important activities performed by the company is very important as all
individual involved in such activity will be accountable to each other and task will be completed
in time. On a walkthrough of ELC, it was observed that there was segregation of duties among
various individual involved in purchase and payment for the acquisition of stock. The individuals
involved in this process were warehouse manager, warehouse assistants, head office, financial
comptroller and managing directors. The chances of error become very low in cases where
segregation of duties is.
4. Involvement of managing directors
It is essential that top-level management also takes part in important decisions or conduct an
overview of important decisions. It is the policy of the company that any payment made to
suppliers in excess to $20000 will have to be approved by managing director (Popov, Lyon &
Hollcroft, 2016).
Weaknesses
1. No proper documentation
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