Unit 6

Problems: 1237

The following are typical questions that might appear on an internal control questionnaire for inventory: Are written procedures prepared by the client for the taking of the physical inventory? Do the client's inventory-taking procedures include a requirement to identify damaged inventory items? Does the client maintain perpetual inventory records?

Required: Describe the purpose of each of the above controls. Describe the manner in which each of the above procedures might be tested. Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of risk.