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Mercu Berhad has the following internal controls related to inventory: (i) The inventory purchasing system only allows purchases from pre-approved vendors. (ii) The perpetual inventory
Mercu Berhad has the following internal controls related to inventory: (i) The inventory purchasing system only allows purchases from pre-approved vendors. (ii) The perpetual inventory system tracks the average number of days each inventory product number has been in the warehouse. (iii) 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. (iv) Only authorized inventory warehousing personnel are allowed in inventory storage areas. (v) All inventory products are stored in warehousing areas that are segregated from other storage areas used to house equipment and supplies. (vi) On a weekly basis, inventory accounting personnel take samples of inventory products selected from the perpetual inventory system and verify that the inventory is on-hand in the warehouse and that the quantities in the listing are correct. (vii) On a weekly basis, inventory accounting personnel select inventory items on hand in the warehouse and verify that the item is included in the perpetual investing listing at the correct amount. (viii) The perpetual inventory system subtotals the quantity of inventory in the system and interfaces with the general ledger system on a daily basis to ensure quantities agree. (ix) The perpetual inventory system will not accept inventory additions without the recording on a valid receiving report. (x) All inventory held on consignment at Mercu Berhad is stored in a separate area of the warehouse. Required: For each of the internal controls: (a) Identify and explain the transaction-related audit objective(s) affected by the control. (5 marks) (b) Describe the risks whereby the control is designed to mitigate. (10 marks) (c) Design a test of control to determine if the control is operating effectively. (10 marks)
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