Individual Assignment ACC 492 Resource: Modern Auditing Prepare written answers to the following assignments * Ch. 16: Comprehensive Question 16-26 Evaluation of Internal Controls – Raw Materials and Supplies Inventory * Ch. 16: Comprehensive Question 16-29 Computer-Assisted Substantive Tests for Inventory ______________________________________________________________________________ Comprehensive Question 16-26 Evaluation of Internal Controls – Raw Materials and Supplies Inventory a. Identify the weaknesses in Jameson Company’s internal control procedures used for (1) Ingredients inventory and 2) Maintenance material and supplies inventory. Ingredients Inventory a. Weaknesses 1. Poor authority for receiving materials. 2. Receivers are currently accepting anything delivered and not taking a coordinated count 3. Ingredients inventory should not be stored in the production area. 4. There is only a periodic inventory system 5. There are no adjustments or reconciliation of the books to inventory 6. No appropriate cut-off procedures are being implemented. Maintenance Materials and Supplies Inventory a. Weaknesses 1. The access to inventory is unrestricted at various times. 2. There is a periodic inventory system. _____________________________________________________________________________ Comprehensive Question 16-29 Computer-Assisted Substantive Tests for Inventory An auditor is conducting an audit of the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution center and two public warehouses. An inventory computer file is maintained on a computer disk and at the end of each day the file is updated. Each record of the inventory file contains the following data: 1. Item number 2. Location of item 3. Description of item . Quantity on hand 5. Cost per item 6.
Date of last purchase 7. Date of last sale 8. Quantity sold during year The auditor is planning to observe the distributor’s physical count of inventories as of a given date. The auditor will have available a computer tape of the data on the inventory file on the date of the physical count and a general-purpose computer software package. Required: The auditor is planning to perform inventory substantive tests. Identify the inventory tests and describe how use of the general-purpose software package and the tape of the inventory file data might be helpful to the auditor in performing such tests. Hint: You may wish to refer to Chapter 12 as well as this chapter in answering this question. ) Organize your answer as follows: | Inventory Substantive Tests| | How Generalized Audit Software Might Be Helpful For Substantive Tests| 1. | Observe the physical count, making and recording test counts where applicable. | 1. | Determining which items are to be test counted by making a random sample of a representative number of items from the inventory file as of the data of the physical count. | 2. | Test the mathematical accuracy of inventory| 2. Mathematically compute the dollar values of inventory items and analyze accuracy. | 3. | Compare auditor's test results to inventory records. | 3. | Arranging test counts in the inventory file and match information. | 4. | Examine purchases and sales cutoffs. | 4. | Use a sample from inventory and examine the dates of purchases and dates of sales. | 5. | Test inventory pricing by obtaining the costs for items from vendors, or other confirmable sources. | 5. | Match the filed items to information provided by vendors. | 6. | Compare physical