b$)$ For each substantive test identified in a$.,$ indicate the account balance assertion to which it

pertains.

Assignments Due: Week $10$

AP$13\mathrm{.}7($LO $2)$ Evaluation of internal controls$$raw materials inventory You have been engaged by the

management of Alden, Inc. to review its internal controls over the purchase, receipt, storage, and issue

of raw materials. You have prepared the following comments that describe Alden's procedures:

$16|$ P a g e

ACCT$3043$ Semester I, $20200/21$

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 managers.

There are no perpetual inventory records; therefore, the storeroom clerks do not keep records of goods

received or issued. To compensate for the lack of perpetual records, inventory is counted 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 agree the 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

Describe the deficiencies in internal control and recommend improvements in Alden's procedures for

the purchase, receipt, storage, and issue of raw materials. Organize your answer sheet as follows:

Deficiency Recommended Improvements