Auditing: Inventory and Production Cycle

Questions and Answers

What is the primary responsibility of a senior staff member concerning requisition lists and purchase orders?

To compare the order to the inventory received

To maintain contact with suppliers for delivery updates

To authorize and ensure proper documentation of requisitions (correct)

To prepare a goods received note for each transaction

Before placing an order, which aspect is NOT considered when reviewing the order?

The quantity of goods on order

The nature of the goods being ordered

Reasonableness of price

The location of the supplier's warehouse (correct)

Which record-keeping practice is essential for the ordering department?

To file requisition lists sequentially and monitor them frequently (correct)

To file requisition lists randomly to enhance retrieval speed

To cross-reference purchase orders with suppliers for accuracy

To discard old requisition files after three months

What should a receiving clerk do upon confirming inventory received?

Prepare a goods received note based on the actual goods received Signup and view all the answers

What is the purpose of frequently cross-referencing order files with goods received notes?

To identify long-outstanding orders and maintain inventory accuracy Signup and view all the answers

What is required for raw materials to leave the warehouse?

A pre-numbered raw material requisition authorized by the production foreman Signup and view all the answers

What must be included in the raw material requisition?

Quantity and description of the necessary items Signup and view all the answers

Who is responsible for authorizing the raw material requisition?

The production foreman Signup and view all the answers

What must the warehouse create after the requisition is authorized?

A pre-numbered delivery note Signup and view all the answers

What is the role of the head storeman in the process?

To approve the issue note Signup and view all the answers

What should happen to the copies of the delivery note made by the warehouse?

One copy stays at the warehouse, one accompanies the inventory Signup and view all the answers

How should the raw material requisition be formatted?

Pre-numbered and written clearly Signup and view all the answers

In what manner should the two copies of the requisition be managed?

One remains in production, the other goes to the warehouse Signup and view all the answers

What is one identified weakness in the inventory counting process of Tumi (Pty) Ltd?

No count controller is appointed. Signup and view all the answers

Why is it important to have staff assigned to different functions during the inventory count?

It ensures thorough coverage and accountability during the count. Signup and view all the answers

Which of the following is a suggested method to verify inventory accuracy that was not followed?

Counting the inventory twice. Signup and view all the answers

What is a consequence of not tidying the area before an inventory count?

It may lead to miscounts or unresolved discrepancies. Signup and view all the answers

What role does having numerically sequenced count sheets play in the inventory process?

They ensure accurate recording and tracking of inventory items. Signup and view all the answers

Why is it important for counters to identify damaged or obsolete inventory during the count?

To maintain an accurate representation of usable inventory. Signup and view all the answers

What negative impact could the presence of movement in the storeroom have during an inventory count?

It may distract counter staff from their duties. Signup and view all the answers

What is the importance of having count teams divided into pairs during inventory counting?

It provides immediate verification of counted items. Signup and view all the answers

What is a significant weakness in the internal controls of the inventory count procedures?

Inadequate team member attendance at the preliminary meeting Signup and view all the answers

Which factor contributed to poor planning of the inventory count?

The meeting was scheduled for a time when not all were available Signup and view all the answers

How did the lack of documented procedures impact the inventory count?

Members were confused about their responsibilities during the count Signup and view all the answers

What is a major oversight in preparing for the inventory count?

Not ensuring the warehouse was tidy for count efficiency Signup and view all the answers

Why is it critical to have knowledgeable warehouse members in the inventory team?

Their expertise helps to identify discrepancies during the count Signup and view all the answers

What aspect of the count was severely undermined by using only one team for the inventory count?

The verification process to ensure reliability in results Signup and view all the answers

What is a critical flaw related to inventory movement during the count?

Controlling movement of inventory was ignored Signup and view all the answers

What indicates a lack of systematic control in the inventory count process?

Count sheets were issued without recording details Signup and view all the answers

Why is the absence of perpetual inventory records problematic for inventory management?

It makes it impossible to track inventory levels accurately. Signup and view all the answers

What is a recommended practice for ensuring perpetual inventory records are accurate?

Regularly reconcile perpetual records with the general ledger. Signup and view all the answers

What should be included in the perpetual inventory system according to the recommendations?

All items, including their quantities and values. Signup and view all the answers

What should be done when there are discrepancies between physical inventory and perpetual inventory records?

Investigate and adjust the perpetual records if they are incorrect. Signup and view all the answers

Based on the recommended practices, what should purchase requisitions be based on?

Current stock levels and re-order levels. Signup and view all the answers

Who should ideally control the perpetual inventory records?

An independent official other than storemen. Signup and view all the answers

What can happen if the totals in perpetual inventory records are not regularly agreed with the general ledger?

Inaccuracies may propagate, leading to financial discrepancies. Signup and view all the answers

What is a potential consequence of not following up on discrepancies in inventory records?

It could lead to overstocking or stockouts of materials. Signup and view all the answers

Study Notes

Weaknesses in Inventory Count

Date and time for the inventory count were not predetermined, leading to potential disorganization.
No pre-count planning meeting was conducted, resulting in unclear objectives.
Counting method and tagging system for inventory were not specified.
Staff requirements and assignments to specific functions were not communicated, risking inefficiency.
Appointment of a count controller was missed, which is critical for oversight.
The counting area was not prepared, affecting the accuracy of the count.
Lack of a sketch or layout of the storeroom hindered effective counting.
Pre-printed, numerically sequenced count sheets that detail inventory were not utilized.
No inventory tags were distributed, making tracking difficult.
Instructions for conducting the count were not documented and shared with the team.
The counting staff were not divided into teams of two for accountability and accuracy.
Teams lacked access to a floor plan, impairing their ability to navigate the storeroom.
Inventory was only counted once, which undermines verification processes.
There was no system to indicate counted inventory, risking double counting or omissions.
Counters did not identify obsolete or damaged inventory, harming inventory integrity.
Count controller’s walkthroughs were overlooked, leading to unverified counts.
No checks were made to confirm first and second counts matched, risking discrepancies.
Movement within the storeroom during counting created distractions and potential errors.
Count sheets were not signed off post-count, lacking formal closure on the count.
Count instructions were not circulated, leading to confusion among the count team.

Weaknesses in Internal Control Procedures

The absence of a floor plan during inventory count planning led to inefficiencies.
Lack of documented and communicated count procedures left teams unprepared.
Members missing from meetings may not have received adequate instructions prior to the count.
Poor planning was evident when a count meeting was scheduled without confirming team availability.
No preparation of the storeroom for easy identification of inventory caused confusion.
No designated area for inventory movement made tracking deliveries difficult.
A count register to monitor count sheet issuance was not maintained, preventing accountability.
Team members lacked expertise in inventory management, risking accuracy in counts.
The failure to count inventory multiple times by different teams created potential for errors.

Recommendations for Improvement

Implement a perpetual inventory record system managed by a responsible official, separate from storemen.
Ensure both quantity and value data are included in the perpetual inventory records.
Regularly reconcile perpetual inventory records with the general ledger for consistency.
Align perpetual inventory records with physical inventory during counting, adjusting discrepancies promptly.
Base purchase requisitions on actual inventory needs, communicated accurately to suppliers.
Confirm supplier availability and delivery schedules upon ordering, even from approved vendors.
Require senior staff approval for all requisition lists and purchase orders for enhanced oversight.
Establish a review process for comparing orders to requisitions to prevent errors.
Designate a receiving clerk to confirm received inventory and create goods received notes accurately.

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Description

This quiz focuses on identifying weaknesses in inventory counts related to Tumi (Pty) Ltd. It challenges students to apply auditing principles and enhance their communication skills in expressing clarity. Perfect for students studying auditing at the University of Limpopo.