Information in a company is essential to give management and society the possibility of knowing the entity on which they will make important decisions of a financial and economic nature. According to Michael PorterBuyers - "customers" - compete in the industrial sector by forcing down prices, negotiating for superior quality or more services, and making competitors compete with each other - all at the expense of the profitability of the industry.
Suppliers can exercise bargaining power over those who participate in an industrial sector by threatening to raise prices or reduce the quality of products or services. If this is so, how could the top management of a company make competition decisions if it were not aware of the occurrences of its supply situation and the financial reality of payments?
accounting-and-financial-auditIn general, the information may exist, but is it true, is it complete, is it reasonable? That is the question of the informed, this is how a professional expert is required to give an opinion on the reasonableness of this information. That is the role of financial auditing. Based on a selective and convenient sample examination, the financial auditor will give an opinion on the reasonableness of the financial statements, or if this information is not sufficient or competent: she will refrain from giving an opinion,.
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Michael Porter: Competitive Strategy 1st Edition, Year 1998 Chapter 5 "Structural Analysis of the Industrial Sectors" pp.44-47
A strategic decisionCriticism for any firm is one focused on the point of making or buying.
The complete character of the company can be modified by its position regarding this decision, which is of vital importance for the production and competitiveness of a company.
According to what has been said before, planning must first establish what to sell, how much and where? From what will be deduced what and how much is needed to buy for sale or in the case of an industry the inputs and services necessary to produce. As soon as the above is determined, the question will be asked in the processes: to make or buy? From the determination the strategic plan of needs in quantity, quality and value will be made.
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"Production and Operations Management" Chase Aquilano Jacobs, Chapter 12, Page 467, (2001)
To guarantee the coverage of the needs of the company, the stock of raw materials and elements for assembly and storage should be as low as possible.
The budget in general, is deeply related to purchasing and, as there are differences between what is budgeted and what has been done, the purchasing department is asked to substantiate deviations or variations. As well as the analysis and study of them, which leads to taking measures to overcome them.
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“Acquisitions and Supplies” CP, LAE, MCy Dr. Cristóbal del Río González.ecafsa / thompson learning (page I25)
Supply Planning and Administration includes the preparation of an administrative and technical work plan for the relative tasks of storage and stock of raw materials and assembly elements, as well as analytical accounting and exploitation of costs.
It is worth saying that these efforts vary from one company to another because there is commonly a purchasing department and a warehouse department, both of which tend to work independently so that there is little Frequently, within the reality of a production or marketing management, it is possible to exercise both functions, depending on the priority that is presented in each of them.
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Material by: Br. Santamaría Juana; Br. Villegas Oxdali; [email protected]; Br . Martínez Eulennys ; BOLIVARIAN REPUBLIC OF VENEZUELA, COLLEGE OF ADMINISTRATION AND MARKETING CUAM - CALABOZO EXTENSION Monographic Work “Planning and Administration of Provisioning” illustrated.com
This planning must contemplate the following aspects:
a) Situations that give rise to the Purchase.
b) Objectives and importance of operational analysis
c) The type of purchases-goods, merchandise, raw materials, services-
d) Advance purchases
e) Emergency purchase limit
f) Expected percentage of speculative purchase
g) Reciprocal purchases
h) Salvage purchases
i) Purchases of surplus
j) Purchases in the open market.
k) Purchases of related items.
l) Special purchases.
m) Purchases of special items.
n) Corporate purchases.
o) Purchases º
p) Quality, quantity, exact price, financing and service.
CONCEPT OF THE GAMES THAT COMPOSE THE COMPONENT
Purchase management aims to acquire stocks for sale, production or service, that is, goods, raw and auxiliary materials, supplies, containers and packaging, as well as the purchase of services necessary for the development of the activity of the entity. This process has two accounting effects; the registration of an asset (acquisition of productive goods or services) or an expense (non-productive services) and the accounting of the corresponding debt with the supplier.
Commercial accounts payable demonstrate the existence of obligations of the entity towards third parties and their cancellation is generally carried out through the delivery of monetary values.
RELATIVE IMPORTANCE OF THE GAMES THAT COMPOSE THE COMPONENT
In this component there are items that show a situation at a given moment, the obligations to third parties, and others that represent transactions that occurred during a period, purchases and payments.
The significance in the financial statements of the accounts payable depends on the operating characteristics of the entity or the activity in which it operates. The amount of these balances may depend on the payment terms to suppliers or the existence of periods in which purchases are concentrated. Purchases and payments represent one of the natural and Indispensable processes of all economic activity, their transactions generally being numerous and significant
The fundamental objective of purchasing management. As mentioned above is the acquisition of materials, BRIEF DESCRIPTION OF THE ACTIVITIES INCLUDED IN THE COMPONENT
The inclusion of the considerations indicated below are only intended to allow the reader to become familiar with the flow of operations that may occur in the entities to be audited. Typical situations are included and therefore the comments made here do not cover all the possible combinations.
The fundamental objective of purchasing management. As mentioned above, it is the acquisition of materials, supplies and services at the lowest cost that is compatible with the needs of quality and service. The purchasing function is responsible not only for the cost of materials, but also for the cost, important enough, of obtaining them, "Authorization" decisions are the starting point for establishing internal control over purchasing operations.
Companies vary in terms of the formality of the structure of their purchasing organization, as well as the breadth and degree of complexity of their planning and control activities. The organizational structure and delegation of authority within this structure establish the framework of work in which decisions are made in purchases. These "authorization" decisions are the starting point for establishing internal control over purchasing operations.
The position of the head of purchasing in the company varies considerably. In many companies, the importance of the purchasing function in achieving profitability objectives results in the purchasing manager being a key member of senior management. The name "Purchasing Manager" is commonly used to designate the position of the person responsible for purchasing. The purchasing manager will depend on a series of purchasing executives, who in large organizations may be integrated into purchasing units according to the kinds of goods or services that are acquired. The nature of purchasing activities usually requires a large administrative staff.
There are advantages, both in centralization and in the decentralization of purchases. Some of the advantages attributed to the centralization of purchases are: greater negotiating capacity, due to the consolidation of orders: greater control over the stock levels of certain materials: the opportunity to have specialized purchasing executives, as well as better supervision and stricter adherence to standards. Some of the advantages of decentralizationof purchases are: the reduction of delivery times resulting from the proximity of purchasing executives to sources of supply, easier communication between purchasing executives and user departments and a greater understanding by parle of executives of Purchases of uses and specifications of materials, Some companies manage to obtain advantages of both forms of organization by combining decentralization of purchases with centralized control.
By reviewing organization charts, job descriptions, and policy and procedure manuals, as well as changing impressions with responsible staff, you can gain an understanding of how these controls are applied.
An important aspect that the auditor should recognize is how the purchasing functions are organized and who is responsible for the activities. It is important to consider to what extent the purchasing function itself or other departments or people outside the purchasing organization have a responsibility, whether recognized, or in fact, for the acquisition of substantial quantities of goods and services. The auditor may be interested in knowing the assignment of the responsibilities corresponding to the following activities:
- Establish the quantities of the orders. Approve the requests that initiate the purchasing process. Establish the prices and acceptable payment conditions for the items purchased. Select the suppliers and obtain offers and budgets. Select the shipping methods and control the transportation costs..Binding the company legally when contracting the orders. Contracting the insurance coverage of shipments received, Negotiating and approving the conditions with the suppliers, Negotiating the production contracts outside the company.
Production planning and control
- Determine the quantities of the orders Establish the necessary delivery times for the main types of purchases Perform a marginal cost analysis to establish the appropriate quantity to be purchased.
Engineering
- Standardize raw materials and components purchased in order to minimize the number of items in stock. Conduct an analysis on the advisability of manufacturing or buying. Coordinate changes in purchases with technological changes.
Control quality
- Develop standards on inspection and quality checking that can be communicated to suppliers and applied to the receipt of materials. Inspect supplier facilities to verify their ability to produce according to the established standards.
Invoice Process
- Reconciliation of purchase forms and procedures with accounting records to avoid duplication of
administrative work. Verification of prices and conditions before approval of payment of invoices.
In general, the activities included in the sequence of processing the purchasing, accounts payable and payments component are:
- Purchase requestPurchase orderReceptionPayments
GUIDELINES FOR UNDERSTANDING AND BUSINESS ANALYSIS
The characteristics of this component vary from entity to entity based on the type of business you develop.
There are several aspects that must be considered in order to evaluate the environment in which the organization operates.
Other possible guidelines may include the following guidelines in order to understand and analyze the business in which the entity operates and use that understanding to determine the audit approach to apply.
RELATED TO THE NATURE OF PURCHASES
- Financial importance of the inputs and services purchased.
The financial importance of the amount, absolute or relative, of purchases depends on the characteristics of the operation of each company. In some companies the cost of the supplies and services purchased represents a substantial part of each sale amount; In other companies, the cost of the materials purchased is comparatively small.
- Characteristics of supply sources and price stability.
- Reliability of supply and predictability of delivery times
The production and delivery times of some manufacturing companies depend on the timely and effective compliance by suppliers or subcontractors. IF a material is purchased from a certain number of suppliers, the procedures used by the receiving department to check the quantity and quality may differ from those cases in which only one supplier or a small number of them are used, especially whether it is products or contracts involving complex and specially designed components. If delivery times cannot be foreseen, purchases will often be made urgently, in order to satisfy production needs. Perhaps the temptation will be to ignore the usual internal accounting control procedures on these occasions.
- Importance of transport costs
Knowledge of the nature of the inputs purchased constitutes the basis for determining the relative importance of transportation costs. IF these are Important, the company must separately document the applicable procedures in relation to the various means of transport used, the FOB locations and other pertinent data.
RELATED TO THE LINKAGE WITH SUPPLIERS
The auditor should be alert to the existence of possible links between suppliers and important shareholders, members of the Board of Directors and employees. If there are eventual incompatibilities, the following questions should be studied:
- Major operations with associated entities may require special attention to determine whether the price and other considerations with equivalents to those usual in operations between independent entities. The policies and procedures applied by the company to monitor and resolve incompatibility situations may need to be revised.
VALUATION AND EXPOSURE ASPECTS
VALUATION ASPECTS
An important aspect to take into account is the moment when an obligation with third parties should be recognized. Obligations for acquisition are recorded when the good or service is received. For this reason, the control carried out by the company on the cut of the reception reports is of great importance, since this document is the one that indicates the birth of the obligation with the supplier.
For the valuation of accounts payable, their probable cancellation value must be considered, that is, they must be valued at the amount that the provider expects to receive for the provision of services or the sale of the property.
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