The Frist Corporation

1-21 (Objectives 21-1, 21-3, 21-5, 21-6, 21-7) The Frist Corporation has the following internal controls related to inventory:

  • 1. Only authorized inventory warehousing personnel are allowed in inventory storage areas.
  • 2. All inventory products are stored in warehousing areas that are segregated from other storage areas used to house equipment and supplies.
  • 3. All inventory held on consignment at Frist Corporation is stored in a separate area of the warehouse.
  • 4. The inventory purchasing system only allows purchases from pre-approved vendors.
  • 5. The perpetual inventory system tracks the average number of days each inventory product number has been in the warehouse.
  • 6. Microchips are embedded in each product and when inventory items are removed from the warehouse to shipping, radio-frequencies signal a deduction of inventory to the perpetual inventory system.
  • 7. On a weekly basis, inventory accounting personnel take samples of inventory products selected from the perpetual inventory system and verify that the inventory is on-hand in the warehouse and that the quantities in the listing are correct.
  • 8. On a weekly basis, inventory accounting personnel select inventory items on hand in the warehouse and verify that the item is included in the perpetual inventory listing at the correct amount.
  • 9. The perpetual inventory system subtotals the quantity of inventory in the system and interfaces with the general ledger system on a daily basis to ensure quantities agree.
  • 10. The perpetual inventory system will not accept inventory additions without the recording on a valid receiving report.

For each of the internal controls:

Required

  • a. Identify the related transaction-related audit objective(s) affected by the control.
  • b. Describe risks the control is designed to mitigate.
  • c. Design a test of control to determine if the control is operating effectively.
 
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