You have been engaged by the management of Alden, Inc. to review its internal control over the purchase, receipt, storage, and issue of raw materials. You have prepared the following comments to describe Aldens procedures.

Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel include a supervisor and four clerks. All are well trained, competent, and adequately bonded. Raw materials are removed from the storeroom only on written or oral authorization of one of the production supervisors.

There are no perpetual inventory records; hence, the storeroom clerks do not keep records of goods received or issued. To compensate for the lack of perpetual records, a physical inventory count is taken monthly by the storeroom clerks, who are well supervised. Appropriate procedures are followed in making the inventory count.

After the physical count, the storeroom supervisor matches quantities counted against a predetermined reorder level. If the count for a given part is below the reorder level, the supervisor enters the part number on a materials-requisition list and sends this list to the accounts payable clerk. The accounts payable clerk prepares a purchase order for a predetermined reorder quantity for each part and mails the purchase order to the vendor from whom the part was last purchased.

When ordered materials arrive at Alden, they are received by the storeroom clerks. The clerks count the merchandise and reconcile counts to the shipper's bill of lading. All vendors' bills of lading are initialed, dated, and filed in the storeroom to serve as receiving reports.

Required:

a. Identify the inventory assertions covered by the narrative. For each assertion, identify potential misstatements that could occur in the financial statements.

b. Identify the control activities in the narrative that relate to each of the assertions in

(a) above. Indicate whether or not the control activities might prevent or detect these potential misstatements. If they might, indicate how.