Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You have been assigned to review the controls around raw materials purchase cycle as a part of the audit of Bluth Corporation. During your

You have been assigned to review the controls around raw materials purchase cycle as a part of the audit of Bluth Corporation

eriais The storeroom clerks receive the clerks count all items and verify that the counts agree with the quantities on the bi

. at the entrance of the treasurers department. All printed paper checks are sent to the accounts payable clerk, to be maile  

You have been assigned to review the controls around raw materials purchase cycle as a part of the audit of Bluth Corporation. During your fieldwork, you have observed the following: Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel includes a supervisor and four clerks. All are well trained, competent, and adequately bonded. Raw materials are removed from the storeroom upon oral authorization by a production supervisor. 6 No perpetual inventory records are maintained. Hence, storeroom clerks do not keep records for goods received or issued. To compensate the storeroom clerks perform a physical inventory count every 176 days. . After the physical inventory count, the storeroom supervisor matches the quantities on hand against a predetermined reorder level. If the count is below the reorder level, the supervisor enters the part number on a materials requisition list that is sent to the accounts payable clerk. The accounts payable clerk prepares a purchase order for each item on the list and sends it to the supplier from whom the part was last purchased via email. . The storeroom clerks receive the ordered materials upon their arrival. The clerks count all items and verify that the counts agree with the quantities on itiolod dated and filed in the erials The storeroom clerks receive the clerks count all items and verify that the counts agree with the quantities on the bill of lading. The bill of lading is then initialed, dated, and filed in the storeroom to serve as a receiving report. All supplier invoices are routed to the accounts payable clerk for receipt, review, approval, and processing the payment. As a part of this process, the accounts payable clerk will contact the storeroom clerks and obtain a verbal confirmation that that quantity shown on the invoice is the same as shown on the receiving report. Next, the clerk will review the unit price against the last invoice from the same supplier for the same material. If all checks out, the accounts payable clerk approves the invoice for payment. Each Friday, approved supplier invoices that are due within the next week are routed to the treasurer's department for payment. All 13 individuals from the treasurer's department are authorized to disburse funds either by EFT or by printing a check. . Checks are printed on a dedicated printer located in the common area within the treasurer's department using special stock paper that is stored in a cabinet at the entrance of the treasurer's department. All printed paper checks are sent to the accounts payable clerk, to be mailed to the respective suppliers. for the invoices processed against at the entrance of the treasurer's department. All printed paper checks are sent to the accounts payable clerk, to be mailed to the respective suppliers. Monthly, the accounts payable clerk reconciles the invoices processed against checks mailed as well as EFT payments disbursed. Simultaneously, the treasurer reconciles the bank statements against the printed checks as well as EFT payments disbursed. Results of both these reconciliations are discussed during the monthly meetings between the accounts payable clerk and the treasurer. Required: Question 6 (15 points) 1. Identify three weaknesses around "Custody." in the process above and explain the impact (consequences) of such weaknesses (1.5 marks each) 2. Propose one control procedure to overcome each weakness identified in (1) above (1.5 mark each) 3. Develop one test of control audit procedure to evaluate the effectiveness of each control procedure identified in (2) above. While doing so, be sure to identify the extent of sampling, focus of the audit testing procedure, audit evidence gathering technique applied, and nature of the audit testing procedure. (2 marks each)

Step by Step Solution

3.45 Rating (164 Votes )

There are 3 Steps involved in it

Step: 1

1 Identify three weaknesses around Custody in the process above and explain the impact consequences ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing and Assurance Services

Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws

6th edition

978-1259197109, 77632281, 77862341, 1259197107, 9780077632281, 978-0077862343

More Books

Students also viewed these Accounting questions

Question

Give codons for the following amino acids: (a) Th (b) Asp (c) Thr

Answered: 1 week ago