The following questions address fraud risks in specific audit areas and accounts.

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Part 1

a. Which of the following internal controls will best 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?

1.

Maintain a perpetual inventory of only the more valuable items, with frequent periodic verification of the validity of the perpetual inventory records.

2.

Have an independent auditing firm examine and report on management's assertion about the design and operating effectiveness of the control activities relevant to inventory.

3.

Have separate warehouse space for the more valuable items, with sequentially numbered tags.

4.

Require an authorized officer's signature on all requisitions for the more valuable items