Question: The following questions are part of an internal control questionnaire

The following questions are part of an internal control questionnaire for the inventory process. For each question:
a. Describe the misstatement in the financial statements that could occur if the question if the client answered “no.”
b. Explain how you would design a substantive test to evaluate the potential misstatement in the financial statements due to the missing control.
c. If the client answers “yes” to the question, describe an internal control that the client could use.
d. Describe how you could test the internal control described in part (c).
Answer the following internal control questions for the inventory process:
(1) Does the receiving department prepare prenumbered receiving reports and account for the number periodically for all inventory received, showing the description and amount of materials?
(2) Is all inventory stored under the control of a custodian in areas to which access is limited?
(3) Is a detailed perpetual inventory master file maintained for raw materials inventory?
(4) Are physical inventory counts made by someone other than storekeepers and those responsible for maintaining the perpetual inventory records?
(5) Are standard cost records used for raw materials, direct labor, and manufacturing overhead?
(6) Is there a stated policy with specific criteria for writing off obsolete or slow-moving goods?

View Solution:

Sale on SolutionInn
  • CreatedJanuary 22, 2015
  • Files Included
Post your question