1. In anticipation of an upcoming engagement, an internal audit team recently toured the company’s receiving, warehousing, and production facilities to obtain a better understanding of day-to-day operations. Listed below are selected items noted by the internal audit team during the tour:

• A large number of materials were sitting in a corner near the unloading docks. The receiving manager informed the audit team that the delivery trucks had already left. The materials had not yet been counted or inspected.
• One section of the warehouse contained large quantities of items with inventory tags from several physical inventory counts. The warehouse manager told the audit team that this was the company's inventory of spare parts that it was required by law to keep on hand for specified time periods.
• Hazardous chemicals are used in the inventory finishing process. Waste chemicals are stored in large plastic barrels in a designated area of the factory before being shipped for disposal.

For each item noted by the internal audit team:

1. Describe the potential business risk(s) associated with the item.
2. Discuss how the internal auditors’ knowledge of the risks identified might affect a subsequent audit of the materials acquisition and production processes.

2. A staff internal auditor found the following possible deviations from prescribed controls and documented them in her working papers.

Invoice Number	Prescribed Control	Possible Deviation
248	Written authorizations of sales by the sales order department.	Verbal authorization by phone by the sales order department.
333	Verification of sales order quantities and prices.	No evidence of verification; quantities and prices are incorrect.
377	Verification of sales order quantities and prices.	No evidence of verification, but the quantities and prices are correct.
617	Billing department verification of unit prices.	Price verification is indicated on the invoice; the prices do not agree with the price list in effect at the time of sale.

For each of the items listed above, indicate whether there is or is not a deviation from a prescribed control. Briefly explain your answer.