Describe how the extent of testing of each control will be affected in subsequent years if general controls are effective, particularly controls over program and master file changes.

Beds and Spreads, Inc., specializes in bed and bath furnishings. Its inventory system is linked through the Internet to key suppliers. The auditor identified the following internal controls in the inventory cycle:
1. The computer initiates an order only when perpetual inventory levels fall below pre-
specified inventory levels in the inventory master file.
2. The sales and purchasing department managers review inventory reorder points on
a monthly basis for reasonableness. Approved changes to reorder points are entered
into the master file by the purchasing department manager and an updated print-
out is generated for final review. Both managers verify that all changes were entered
correctly and initial the final printout, indicating final approval. These printouts are
maintained in the purchasing department.
3. The computer will initiate a purchase order only for inventory product numbers
maintained in the inventory master file.
4. The purchasing department manager reviews a computer-generated exception report that highlights weekly purchases that exceed $10,000 per vendor.
Required
Required
Chapter 12 / ASSESSING CONTROL RISK AND REPORTING ON INTERNAL CONTROLS 411
5. Sales clerks send damaged merchandise on the store shelves to the back storage room.
The sales department manager examines the damaged merchandise each month and
prepares a listing showing the estimated salvage value by product number. The ac-
counting department uses the listing to prepare a monthly adjustment to recorded
inventory values.
a. Consider each of the preceding controls separately. Identify whether the control is a(n)
(1) automated control embedded in computer software.
(2) manual control with effectiveness based significantly on IT-generated information.
(3) manual control with effectiveness not significantly reliant on IT-generated
information.
b. Describe how the extent of testing of each control will be affected in subsequent years if general controls are effective, particularly controls over program and master file changes.

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