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Auditing Problem-Inventories & Cost of Goods Sold

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You have been engaged by the management of Alden, Inc., to review its controls over the purchase, receipt, storage, and issue of raw materials. You have prepared the following comments, which describe Alden's procedures.

1) Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel include a supervisor and four clerks. All are well trained, competent, and adequately bounded. Raw materials are removed from the storeroom only upon written or authorization of one of the production supervisors.

2) There are no perpetual-inventory records; hence, the storeroom clerks do not keep records of goods received or issued. To compensate for lack of perpetual records, a physical-inventory count is taken monthly by the storeroom clerks, who are well supervised. Appropriate procedures are followed in making the inventory count.

3) After the physical count, the storeroom supervisor matches quantities counted against a predetermined recorder level. If the count for a given part is below the reorder, the supervisor enters the part number on a material requisition list and sends this list to the accounts payable clerk. The accounts payable clerk prepares a purchase order to the vendor from whom the part was last purchased.

4) When ordered materials arrive at Alden, they are received by the storeroom clerks. The clerks count the merchandise and agree the counts to the carrier's bill of lading. All bills of lading are initialed, dated, and filed in the storeroom to serve as receiving reports.

Describe the weakness in internal control and recommend improvements in Alden's procedures for the purchase, receipt, storage, and issuance of raw materials. Organize your answer sheet as follows:

Weakness Recommended Improvements

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This solution discusses Auditing Problem - Inventories & Cost of Goods Sold.

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Describe the weakness in internal control and recommend improvements in Alden's procedures for the purchase, receipt, storage, and issuance of raw materials. Organize your answer sheet as follows:

Weakness- Recommended Improvements

1. Purchase: Weakness: At present it is on basis of monthly physical stock check, it fails to keep control on usage of material by a particular department and no one can be held accountable if consumption is above normal, this is because no record is being kept about how much material is being issued to particular department. Recommended Improvements: Instead it should be on basis of actual records of inventory of a particular item. For this all material received should be recorded in stock register and whenever ...

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