The control environment reflects the company's attitude, awareness, and actions of management and the board concerning the importance of control and how it is used. This is very relevant to an auditor's consideration of inventories and should include:
a) Commitment to competence and HR policies and procedure;
b) Integrity and ethical values; and
c) Organizational structure and assignment of authority and responsibility.
Central Park Associates CPA is conducting an audit of a U.S. manufacturing company. When reviewing the company's inventory policy and physical inventory policy, they noted the following facts:
1) Physical inventory will be conducted this year by temporary workers, at a wage cheaper for management than the "regular" workers;
2) Approvals for purchase orders with discounts are not required any longer;
3) The shop manager is no longer responsible for the physical inventory; it is now responsibility of the CFO;
4) The physical inventory will be held four days after year end.
Consider these facts in answering the following questions.
1). What aspect of the control environment is affected by the company's decision to hire temporary workers?
2). What aspect of the control environment is affected by the company's decision to no longer require approvals for purchase order discounts?
3). What aspect of the control environment is affected by the company's decision to no longer have the shop manager in charge of inventory?
4). What aspect of the control environment is affected by the company's decision to hold the physical inventory four days after year end?