Audit unit 6 assignment.docx - 12-21 Nolan Manufacturing Company retains you on April 1 to perform an audit for the fiscal year ending June 30 During

Audit unit 6 assignment.docx - 12-21 Nolan Manufacturing...

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12-21 Nolan Manufacturing Company retains you on April 1 to perform an audit for the fiscal year ending June 30. During the month of May, you make extensive studies of internal control over inventories. All goods purchased pass through a receiving department under the direction of the chief purchasing agent. The duties of the receiving department are to unpack, count, and inspect the goods. The quantity received is compared with the quantity shown on the receiving department's copy of the purchase order. If there is no discrepancy, the purchase order is stamped “OK—Receiving Dept.” and forwarded to the accounts payable section of the accounting department. Any discrepancies in quantity or variations from specifications are called to the attention of the buyer by returning the purchase order to him with an explanation of the circumstances. No records are maintained in the receiving department, and no reports originate there. As soon as goods have been inspected and counted in the receiving department, they are sent to the factory production area and stored alongside the machines in which they are to be processed. Finished goods are moved from the assembly line to a storeroom in the custody of a stock clerk, who maintains a perpetual inventory record in terms of physical units but not in dollars. What weaknesses, if any, do you see in the internal control over inventories? Our text states that a weakness of Nolan Manufacturing Company is that the configuration of control of the inventories in this case, it is lacking structure because of the fact the same purchasing agent is in charge of the receiving department. I strongly agree that typical duties should be segregated and purchasing, receiving, and recording jobs are to be separated and stored in different departments. In this case Nolan Manufacturing purchase orders are sent to the receiving department should not show quantities. Quantity totals should be marked out to ensure that the receiving department will make the independent counts of the merchandised the department has received. This encourages accurate counts and control of inventory and less likelihood of fraud. The receiving department should be in charge of preparing the receiving report for all goods purchased or shipped. This report how well the department is doing and point out the scope of returns along with the department being held accountable for goods received Merchandise should always be held in the warehouse until production is required instead of being sent directly to the production department.
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12-37 The following are typical questions that might appear on an internal control questionnaire for inventory: Are written procedures prepared by the client for the taking of the physical inventory?
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