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” re- sponse to a question indicates a possible internal control, whereas a “no” indicates a po-
tential 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 ac-
cess 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?
8. Is the clerical accuracy of the final inventory compilation checked by a person inde-
pendent of those responsible for preparing it?
a. For each of the preceding questions, state the purpose of the internal control.
b. For each internal control, list a test of control to test its effectiveness.
Required
DISCUSSION QUESTIONS AND PROBLEMS
722Part 4 / APPLICATION OF THE AUDIT PROCESS TO OTHER CYCLES
c. For each of the preceding questions, identify the nature of the potential financial
misstatement(s) if the control is not in effect.
d. For each of the potential misstatements in part c., list a substantive audit procedure to determine whether a material misstatement exists.
