Case Problem B $$ Items $1$ through $8$ are selected questions typically found in questionnaires used by auditors to obtain an understanding of internal control in the inventory and warehousing cycle. In using the questionnaire for a client, a $$yes$$ response to a question indicates a possible internal control, whereas a $$no$$ indicates a potential deficiency. $1.$ Does the receiving department prepare prenumbered receiving reports and account for the numbers periodically for all inventory received, showing the description and quantity of materials? $2.$ Is a detailed perpetual inventory master file maintained for raw materials inventory? $3.$ Are all shipments to customers authorized by prenumbered shipping documents? $4.$ Is all inventory stored under the control of an inventory custodian in areas where access is limited$?5.$ 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? $7.$ Are physical inventory counts made by someone other than storekeepers and those responsible for maintaining the perpetual inventory master file? $38.$ Is the clerical accuracy of the final inventory compilation checked by a person independent of those responsible for preparing it$?$ Requirements: a$.$ For each of the preceding questions, state the purpose $($control objectives$)$ of the internal control $(8$ marks$).$ b$.$ For each internal control, list a test of control to assess its effectiveness $(8$ marks$).$ c$.$ For each of the preceding questions, identify the nature of the potential financial misstatement$($s$)$ if the control is not in effect $(8$ marks$).$ d$.$ For each of the potential misstatements in part c$.,$ list a substantive audit procedure to determine whether a material misstatement exists $(8$ marks$).$ Organize your answer to this case problem by using the following report format: a$.$ PURPOSE OF INTERNAL CONTROL b$.$ TEST OF CONTROL c$.$ POTENTIAL FINANCIAL MISSTATEMENT d$.$ SUBSTANTIVE AUDIT PROCEDURE