The primary objective of this memo is to conduct an audit of the operational processes of Soupers Inc. and develop appropriate controls for detailed test of control audit procedures and substantive testing audit procedures.

Information Provided

Management has provided detailed information regarding the significant operational tasks, departments and individuals involved in completing those tasks.

1. Purchase request from user department to procedure department

2. Purchase request sent from procedure department to the buyer for purchase from the supplier

3. Goods received in the warehouse and stored

4. Goods delivered from the warehouse to user departments

5. Payables are confirmed and sent out

Procedures

The partners and managers of the audit have identified three significant risks that could be associated with Soupers Inc's purchasing processes:

1. Goods may be requisitioned for unauthorized purposes.

2. Incorrect quantities, damaged goods, or incorrect items may be received.

3. Invoices may be recorded incorrectly or not recorded.

Target of Audit

The focus of this audit is directed towards Soupers Inc's purchasing processes. The firm's financial statements must be audited to ensure compliance with the covenant of the loan with the bank. Therefore, it is imperative that revenue stays above zero, and no fraud is occurring. My task is to create a comprehensive audit plan that will be tested through the test of controls as well as substantive testing. A deeper focus will be rolled out to identify the risks as identified in the initial report.

1. Goods may be requisitioned for unauthorized purposes.

2. Incorrect quantities, damaged goods, or incorrect items may be received.

3. Invoices may be recorded incorrectly or not recorded.

Test of Controls Audit Procedures

We will target the three risk areas identified in the audit. We will identify one internal control for each of the risks and develop audit procedures for the same.

Identified Risk 1 - Goods may be requisitioned for unauthorized purposes.

Internal control identified: The internal control process will involve submitting purchase requests to the purchasing clerk to verify the signature of the appropriate approval. The reviewed purchase request will then be sent to the purchasing manager for further review and approval. This internal control mechanism is preventive in nature and prevents purchase requests from being denied.

Extent of Sampling: Select a sample size of 25 through judgment selection analysis as we have already identified areas with high-risk behavior in the purchasing process through our tableau analysis.

Evidence gathering techniques: Inspection - Scan the documentation for the right signature.

Auditors' Actions: The auditor must obtain the total cost of expenses involved and match the appropriate cost to the purchasing request that exists in the system. Our focus is to test for valuation.

Specific Evidence to be Reviewed: The purchasing request form that is manually made, the tier of authorizations and their signatures and then compared.

Identified Risks 2 - Incorrect quantities, damaged goods, or incorrect items may be received.

Internal control identified: The receiver checking the goods packaging slip for accuracy and package for damage is an internal control mechanism. The signature of the receiver on the bill of lading must be filed with the purchasing clerk who reviews for accuracy. This is a detection control mechanism which intends to detect any inaccuracies or damages.

Extent of Sampling: Random selection of 60 samples to ensure identical opportunities for each sample. Despite the absence of a particular area with errors, there is concern about the increase in quantities shipped and received being different, indicating that the sample size should not be limited to 25.

Evidence gathering techniques: Inspection - Scan the bill of lading for a signature.

Auditors' Actions: Ensure that the package was indeed inspected by the receiver for damage and accuracy by scrutinizing the signature of the receiver on the bill of lading from the purchasing clerk.

Specific Evidence to be Reviewed: The bill of lading will be reviewed for accuracy.

Internal control identified: The payable group has access to all the necessary paperwork and bills of lading to accurately record and update the accounts payable balances. This is a preventive measure to avoid any errors in the balances.

Extent of sampling: We will use 5% of the accounts payable balance for the period to ensure accuracy.

Evidence gathering techniques: Inspection: the auditor will inspect all the bills of lading and invoices related to 5% of the accounts payable balance.

Auditor’s actions: The auditor will ensure that the accounts payable balances are accurately recorded by inspecting the bills of lading and invoices related to 5% of the accounts payable balance for the period.

Specific evidence to be reviewed: All necessary paperwork related to 5% of the accounts payable balance will be reviewed.

Substantive Test Audit Procedures

Substantive testing will be done on additional risk areas identified by the manager having conversations with the auditee management. Assuming that internal control is weak, the following WCGWs need to be tested with substantial testing:

- All goods received are actually ordered and recorded.

- All payments to suppliers are accurate and valid.

- Accounts payable balances reflect the actual liabilities of the auditee.

Identified Risk 1) All goods received are actually ordered and recorded.

Internal control identified: The purchasing request, purchase orders, and bill of lading are all kept by the purchasing department to ensure accuracy in goods ordering and recording. This is a preventive control to ensure that all goods ordered are accurate and recorded.

Extent of sampling: We will use 2% of inventory received during the period.

Evidence gathering techniques: Inspection: trace 2% of the inventory received to their corresponding purchase order and bill of lading to prove accuracy.

Auditor’s actions: The auditor will trace 2% of the inventory received during the period to their corresponding purchase order and bill of lading to ensure accuracy.

Specific evidence to be reviewed: Purchase orders and bill of lading for 2% of inventory received.

Identified Risk 2) All payments to suppliers are accurate and valid.

Internal control identified: The payable group has access to all necessary paperwork for each payment, and payment amounts are verified by the payables manager. This is a preventive control to ensure accuracy in payments made to suppliers.

Extent of sampling: We will use 3% of the total payments made during the period.

Evidence gathering techniques: Inspection: the auditor will review 3% of the payments made and ensure that the supporting documentation is accurate and valid.

Auditor’s actions: The auditor will review 3% of the total payments made during the period and ensure that the supporting documentation is accurate and valid.

Specific evidence to be reviewed: Supporting documentation for 3% of total payments made during the period.

Identified Risk 3) Accounts payable balances reflect the actual liabilities of the auditee.

Internal control identified: The payable group has access to all necessary paperwork and updates the accounts payable balances. This is a preventive control to ensure that the accounts payable balances accurately reflect the actual liabilities of the auditee.

Extent of sampling: We will use 5% of the accounts payable balance for the period.

Evidence gathering techniques: Inspection: the auditor will review all the bills of lading and invoices related to 5% of the accounts payable balance for accuracy.

Auditor’s actions: The auditor will review all the bills of lading and invoices related to 5% of the accounts payable balance for the period to ensure accuracy.

Specific evidence to be reviewed: All necessary paperwork related to 5% of the accounts payable balance for the period.

To ensure accurate sampling, we shall utilize a mere 2% of payable liabilities.

Our arsenal of evidence gathering techniques includes inspection. We will closely scrutinize the accounts payable figures from financial statements to bill of lading documents to ascertain that Soupers Inc. indeed purchased and received the liabilities.

Our auditors will take the due diligence of vouching the accounts payables to the bill of lading. We will verify the presence of signatures and our purchases and usages are legitimate.

In order to achieve compliance, we will review financial statements, accounts payable and the bill of lading.

Given our stringent test of controls and the comprehensive substantive testing of 7 WCGWs, our audit firm is fully equipped to initiate the audit process, with the key risk areas thoroughly covered.