Question

tems 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. Are all shipments to customers authorized by prenumbered shipping documents?

2. Are standard cost records used for raw materials, direct labor, and manufacturing overhead?

3. Is there a stated policy with specific criteria for writing off obsolete or slow-moving goods?

4. Is a detailed perpetual inventory master file maintained for raw materials inventory?

5. Are physical inventory counts made by someone other than storekeepers and those responsible for maintaining the perpetual inventory master file?

6. Is the clerical accuracy of the final inventory compilation checked by a person independent of those responsible for preparing it?

7. 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?

8. Is all inventory stored under the control of an inventory custodian in areas where access is limited?

Required

Answer 1

1). If the shipping documents are pre-numbered then it helps in examines the shipping documents with the records of inventory. The internal control exist in this statement is the Accuracy.

2). This statement also verifies the Accuracy in the internal control process as it helps in examining the reliability of cost system and records.

3). The availability of this policy will help in suitable classification of stocks in specific type of product. The internal control exist in this statement is the Accuracy.

4). The detailed master file includes the exact record of stock and total number of the raw material. It verifies accuracy and completeness test of internal control.

5). It is the principle of segregation under internal control that helps to reduce chance of fraud. It covers the existence test of internal control.

6). This will help in assessing the record of sales and the level of inventory. The internal control exist in this statement is the accuracy and completeness.

7). The main purpose of such statement is to verify the accuracy and appropriateness of inventory records, quantity of material, etc.

8). The purpose of this statement is to verify the physical count of the stock or inventory level made by custodian and hence verify the existence and completeness test of internal control.