In general, the objective of an internal audit is to assess the risk of material misstatement in financial reporting. Material misstatements can arise from inadequacies in internal controls and from inaccurate management assertions. As such, testing the validity of various implicit managerial assertions is a key objective of an internal auditor.
While this applies to all financial cycles, this article is the first in a series focusing on the General Control Activities for the Purchasing cycle. The most important general control areas for Purchasing include:
- Performance Management
- Supplier Selection
- Purchase Commissions
- Goods and Services Received
- Invoice Verification
- Master Data Purchasing
In this post, we’ll focus on the General Control Activities for Purchase Commissions.
It is critical for businesses to ensure that purchase commissions and retrospective discounts from suppliers are accurately calculated and requested on a timely basis.The following should be included in any audit:
- Validate that purchase commissions and retrospective discount agreemnets with suppliers are formally documented and stored.
- Verify that there is a clear process in place to track commissions or retrospective discounts that are due from suppliers.
- Make sure the supplier conducts an adequate review of the accuracy of the calculation of commissions or retrospective discounts and that the review is validated internally.
In conclusion, auditing standards require that auditors test basic underlying management assertions implicit in the financial statements. Key objectives to these assertions are; Existence and Completeness, Rights and Obligations, Valuation or Allocation, and Presentation and Disclosure.