The auditors for Middlebrook Company toured the production site of one of the company’s regional divisions. Several things came to the auditors’ attention as they toured the facility:

1. A “graveyard” for old machinery was spotted behind the plant. Heavy weeds were growing around the machinery, much of which was rusty and stacked in a heap. The auditors knew that a healthy market existed for used machinery of this type.

2. A separate warehouse was used to store the inventory of raw materials used in production. A six-month supply of materials was often on hand. The warehouse was located almost 100 yards from the main plant, and a separate road went to the warehouse through a gate in the chain-link fence around the plant site. The road to the main plant had security guards placed at the entrance 24 hours a day. A padlock was used to secure the warehouse gate at night after production shut down.
3. One of the auditors slipped in a puddle of water on the tile floor at the foot of a staircase in the plant. The auditor had not noticed the water and suggested that it be cleaned up before someone fell and was injured. The manager conducting the auditors’
tour said it would be difficult to clean up because of a small fracture in a pipe near the staircase. He said it wasn’t serious and everyone knew about the water and just went around it or over it.
Required:

a. Suggest some of the questions raised by these observations.

b. What effect would these observations have upon the audit program?