Consider each of the controls separately. Identify whether the control is a(n) (1) automated control embedded in computer software. (2) manual control with effectiveness based significantly on IT-generated information. (3) manual control with effectiveness not significantly reliant on IT-generated information. Identify the type of control. Control Type of Control 1. The computer initiates an order only when perpetual inventory levels fall below prespecified inventory levels in the inventory master file. 2. The sales and purchasing department managers review inventory reorder points on a monthly basis for reasonableness. Approved changes to reorder points are entered into the master file by the purchasing department manager and an updated printout is generated for final review. Both managers verify that all changes were entered correctly and initial the final printout, indicating final approval. These printouts are maintained in the purchasing department. 3. The computer will initiate a purchase order only for inventory product numbers maintained in the inventory master file. 4. The purchasing department manager reviews a computer-generated exception report that highlights weekly purchases that exceed $10,000 per vendor. 5. Sales clerks send damaged merchandise on the store shelves to the back storage room. The sales department manager examines the damaged merchandise each month and prepares a listing showing the estimated salvage value by product number. The accounting department uses the listing to prepare a monthly adjustment to recorded inventory values.
Added by Susan M.
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- This control is automated and relies on computer software to function. - **Type of Control: (1) automated control embedded in computer software.** Show more…
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For each of the following three control activities, write a likely test of control that the auditor would/could perform to test the operating effectiveness (be specific in the test you write). [4 points each] 1. Before processing any customer purchase orders, the system automatically verifies that the customer is not over their credit limit. 2. The company does not have any procedures for regularly reviewing inventory for lower of cost or market issues. 3. The system verifies that there is a customer purchase order for the items shipped.
Akash M.
AQ1. Use what you know about internal controls over the order-to-cash process (or search the web if you need a refresher) to identify three different questions that might indicate internal control weakness. For example, if you suspect that a manager may be delaying approval of shipments sent to customers, your question might be "Are any shipping managers approving shipments more than 2 days after they are received?" AQ2. Next to each question, generate a hypothetical answer to help you identify what your expected output would be. You may use some insight or intuition or search the Internet for ideas on how to inform your hypothesis. For example: "Hypothesis: Only one or two shipping managers are approving shipments more than 2 days after they are received." AQ3. Finally, identify the data that you would need to answer each of your questions. For example, to determine the timing of approval and who is involved, you might need the approver ID, the order date, and the approval date.
You are the audit senior assigned to the audit of Henrico Retail Inc. The audit partner recently asked you to assist in planning the audit of the sales system based on your review of the client-prepared sales system narrative. The partner has asked you to address the following issues: [1] Describe the sales transaction audit trail from the point of sale to the general ledger posting to the consolidated sales accounts at the corporate office. Be sure to emphasize which aspects of the audit trail are in paper or electronic form. [2] Describe the difference between a preventative control and a detective control and give an example of each that is present in the sales system at Henrico. [3] Develop a proposed strategy for auditing the occurrence assertion for sales transactions. Describe whether there is a sufficient paper-based audit trail to audit that assertion without relying on IT audit specialists to test electronic-only processes. [4] What evidence source would you use to select a sample of sales transactions to test the occurrence of sales transactions at one store? Why would you use this source? What evidence would you examine for each transaction selected? [5] Develop a proposed strategy for auditing the accuracy assertion for sales transactions. Describe whether there is a sufficient paper-based audit trail to audit that assertion without relying on IT audit specialists to test electronic-only processes. [6] Describe whether you can use the same sample of transactions selected to test the occurrence assertion to also test the accuracy assertion. [7] How would you select a sample to test the completeness assertion for sales? Explain whether the sample used to test the occurrence assertion would be effective for testing the completeness assertion. [8] How do risks related to manual controls differ from risks related to automated controls? Give an example of each from the sales system at Henrico. [9] What portion, if any, of the accounting system will likely require the assistance of an IT systems auditor, who evaluates evidence existing only in electronic form? [10] What control deficiencies can you identify in the existing sales system?
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