Integrating Across the Curriculum (Auditing): Information quality, diagnostic controls, relevant information to auditors Aden, Inc. is a

Question:

Integrating Across the Curriculum (Auditing): Information quality, diagnostic controls, relevant information to auditors Aden, Inc. is a manufacturer of television sets. The company recently revised its production processes and invested in new equipment to reduce labor costs.

REQUIRED:

A. Following are possible measures that Aden could use to monitor product defects. Discuss the quality of information provided by each measure.

1. Ratio of defective televisions returned to the number of televisions sold (data from customer service department records and sales department records).

2. Monthly defective unit warranty costs incurred (data from the general ledger).

3. Monthly number of defects discovered during routine tests of televisions at the end of the manufacturing process (data from production records).

4. Customer survey responses to the question, “How satisfied are you with the quality of your television set?” on a scale from 1 (very satisfied) to 5 (very unsatisfied). Surveys are mailed to 1 percent of randomly selected repeat customers from sales records.

B. List ideas about what Aden’s managers might want to learn from monitoring product defects as part of a diagnostic control system.

C. The measures used by managers to monitor operations are often used by auditors when auditing financial statements. Explain why information about product defects might be relevant to Aden’s auditors when they audit the following:

1. Warranty liabilities

2. Lower of cost or market adjustment for inventory

3. Allowance for doubtful accounts receivable