Suppose a team of internal auditors for a large construction company completed their review of internal controls on an audit of one project’s construction costs. The preliminary survey and review of internal controls revealed that the project manager was not taking bids from potential suppliers before purchasing materials. In order to determine the effect of this practice on construction costs, the auditors were considering two procedures:

1. Interview the project manager and ask if, by his not receiving bids on materials, he was able to speed up completion of the project. If so, by how much?

2. Compare the prices paid for materials on this project to prices for similar materials on other similar projects where the project managers took bids.

Required:

a. How might each of the procedures help the auditors determine if construction costs are affected?

Which procedure likely would be better, if given a choice of only one? Why?

c. Given the choice, would you perform only the one procedure, or would you perform both? Why?