EBK AUDITING+ASSURANCE SERVICES
17th Edition
ISBN: 9780135171219
Author: ARENS
Publisher: PEARSON CO
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Question
Chapter 21, Problem 17DQP
a.
To determine
List the transaction-related audit objective affected by the control.
b.
To determine
Explain the risks by which control is designed to mitigate.
c.
To determine
Plan a test of control to determine that the control is operating effectively or not.
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21-17 (Objectives 21-1, 21-3, 21-5, 21-6, 21-7) The Frist Corporation has the following internal controls related to inventory: Only authorized inventory and warehousing personnel is allowed in inventory storage areas. All inventory products are stored in warehousing areas that are segregated from other storage areas used to house equipment and supplies. All inventory held on consignment at Frist Corporation is stored in a separate area of the warehouse. The inventory purchasing system only allows purchases from preapproved vendors. The perpetual inventory system tracks the average number of days each inventory product number has been in the warehouse. Microchips are embedded in each product and when inventory items are removed from the warehouse to shipping, radio-frequencies signal a deduction of inventory to the perpetual inventory system. On a weekly basis, inventory accounting personnel take samples of inventory products selected from the perpetual inventory system and verify that…
The following set of items describes activities completed by a company in purchasing and
paying for merchandise. For each activity, identify whether or not the activity adheres to or
violates sound internal control procedures.
The receiving department compares the quantity received with the quantity printed
on the receiving report when the purchase order was prepared.
O d. Cannot be determined.
O c. Neither strengthens nor violates internal control
O b. Violates sound internal control procedures
O a. Adheres to sound internal control procedures
Which of the following is not generally an internal control activity?
a.Physically counting inventory in a perpetual inventory system
b.Establishing clear lines of authority to carry out specific tasks
c.Reducing the cost of hiring seasonal employees
d.Limiting access to computerized accounting records
Chapter 21 Solutions
EBK AUDITING+ASSURANCE SERVICES
Ch. 21 - Prob. 1RQCh. 21 - Prob. 2RQCh. 21 - Prob. 3RQCh. 21 - Prob. 4RQCh. 21 - Prob. 5RQCh. 21 - Prob. 6RQCh. 21 - Prob. 7RQCh. 21 - Prob. 8RQCh. 21 - Prob. 9RQCh. 21 - Prob. 10RQ
Ch. 21 - Prob. 11RQCh. 21 - Each employee of the Gedding Manufacturing Co., a...Ch. 21 - Prob. 13.1MCQCh. 21 - Prob. 13.2MCQCh. 21 - Prob. 13.3MCQCh. 21 - Prob. 14.1MCQCh. 21 - Prob. 14.2MCQCh. 21 - Prob. 14.3MCQCh. 21 - Prob. 15.1MCQCh. 21 - Prob. 15.2MCQCh. 21 - Prob. 15.3MCQCh. 21 - Prob. 16DQPCh. 21 - Prob. 17DQPCh. 21 - Prob. 18DQPCh. 21 - Prob. 19DQPCh. 21 - Prob. 20DQPCh. 21 - Prob. 21DQPCh. 21 - Prob. 22DQPCh. 21 - Prob. 23DQPCh. 21 - Prob. 24DQPCh. 21 - Prob. 25DQPCh. 21 - Prob. 26DQPCh. 21 - Prob. 27DQPCh. 21 - Prob. 28DQPCh. 21 - Prob. 29DQPCh. 21 - Prob. 30C
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Similar questions
- A company is trying to set up proper internal controls for their accounts payable/inventory purchasing system. Currently the purchase order is generated by the same person who receives the inventory. Together the purchase order and the receiving ticket are sent to accounts payable for payment. What changes would you make to improve the internal control structure? A. No changes would be made since the person paying the bills is different from the person ordering the inventory. B. The person in accounts payable should generate the purchase order. C. The person in accounts payable should generate the receiving ticket once the invoice from the supplier is received. D. The responsibilities of generating the purchase order and receiving the inventory should be separated among two different people.arrow_forwardItems Included in Inventory The following are several items that Golosow Companys controller has questioned regarding their inclusion in inventory: a. An invoice has been received for goods ordered. The goods were shipped FOB destination but have not been received. b. Purchases have been ordered and received (shipping terms were FOB destination), but no invoice has arrived. c. Product was shipped to a customer today, FOB destination, and the invoice mailed. d. Purchases are in the receiving department, but they are damaged and will be returned. e. Product is in the shipping department, and the invoice has not been mailed to the customer. Shipping terms are FOB shipping point. f. Golosow has inventory in its possession from Tate Company. The inventory is to be sold by Golosow under a consignment arrangement with Tate. Required: 1. For each of the preceding items, indicate whether Golosow should include them in inventory. Justify your answer. 2. Next Level Describe the basic criterion for including items in inventory.arrow_forwardWhich of the following is not an example of safeguarding inventory? a. physical devices such as two-way mirrors, cameras, and alarms b. returning inventory that is defective or broken OC. matching receiving documents, purchase orders, and vendor's invoice Od. storing inventory in restricted areasarrow_forward
- Which of the following internal control activities most likely addresses the completeness assertion for inventory?a. The work-in-process account is periodically reconciled with subsidiary inventory records.b. Employees responsible for custody of finished goods do not perform the receiving function.c. Receiving reports are prenumbered, and the numbering sequence is checked periodically.d. There is a separation of duties between the payroll department and inventory accounting personnelarrow_forwardWhich of the following procedures would best prevent or detect the theft of valuable items from an inventory that consists of hundreds of different items selling for $1 to $10 and a few items selling for hundreds of dollars?a. Maintain a perpetual inventory of only the more valuable items with frequent periodic verification of the accuracy of the perpetual inventory record.b. Have an independent accounting firm prepare an internal control report on the effectiveness of the controls over inventory.c. Have separate warehouse space for the more valuable items with frequent periodic physical counts and comparison to perpetual inventory records.d. Require a manager’s signature for the removal of any inventory item with a value of morethan $50.arrow_forwardFor companies that use a perpetual inventory system, all of the following are reasons for taking a physical inventory except to determine losses due to employee theft. to determine ownership of the goods. to check the accuracy of the records. to determine the amount of wasted raw materials.arrow_forward
- Which of the following methods of inventory control will be used in case of a business whose inventory consists of a relatively small number of unique, high-cost items?arrow_forwardInventory is a vital part of most businesses. Proper controls should be in place for the safety and reporting of inventory. Inventory errors can cause many problems for business. Part 1: Inventory Answer the following: Provide the name of a business and example inventory for that business. List one or more examples of ways to safeguard inventory. List each of the cost methods and briefly explain. How do you calculate inventory turnover? How is inventory turnover used?arrow_forwardABC Company is using the inventory system managed by the vendor. The product is owned and managed by the vendor until it is delivered from ABC's distribution center to the stores. What do you think will be the problems that ABC will encounter in its purchases and payments process?arrow_forward
- Sales orders are written by sales people who have no access to the goods, which are released by warehouse personnel. This is example of: an analytical review establishing a system for storing and counting inventory proper documentation that is monitored properly segregation of dutiesarrow_forwardThe tests of controls for inventory records would include the following procedures.A. Existence.B. Rights.C. Completeness.D. Valuation.E. Presentation and disclosure.For each of the procedures, choose the letter of the correct PCAOB assertion(s). Only one letter per procedure should be used._______ 1. Trace a sample of sales invoices to perpetual inventory record entry of issue._______ 2. Select a sample of inventory item from perpetual records and vouch additions to receiving reports._______ 3. Select a sample of shipping documents and review the accounting summary of the quantities and prices._______ 4. Trace posting of sample of sales invoices to amounts in general ledger._______ 5. Review the appropriateness of standard costs to price inventory issues and cost of goods soldarrow_forwardWhich of the following statements concerning internal control procedures for merchandise sales is not correct? a.Accounting for a sale begins with the receipt of a purchase order or some similar document from a customer. b.Shipping and billing documents are prepared based on the order document. c.A sale and its associated receivable are recorded only when the order, shipping, and billing documents are all present. d.The order document is not necessary for the buyer to be obligated to accept and pay for the ordered goods.arrow_forward
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