Audit - explanation of carl computers PDF

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explanation of carl computers ...

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(a)Inherent risks for inventory for Carl’s Computers include: 1.Likelihood of rapid obsolescence of computer hardware and accessories – risk of incorrect valuation of obsolete product 2.Foreign exchange transactions – are contracts written in US$, A$, etc., are the transactions hedged against adverse movements in exchange rates? – leading to difficulty ascertaining cost of purchase and incorrect creditor liability 3.Competition from aggressive discounters, risk that inventory will not be held on hand to meet fluctuating sales, risk that inventory will be unsold because of competition – increasing risk of obsolescence, valuation problems 4.Rapidly changing product lines – risk that suppliers will change and products not be to required standard, valuation problems 5.Risk that correct stock will not be received from suppliers due to inability to meet orders, confusion between Australian importers and foreign suppliers – purchase orders unfilled or incorrectly filled, payment for stock not received 6.Dealing with multiple transport companies – ship from overseas and truck from ports – could increase risk of goods not being received, or not received in a timely manner, missing inventory 7.Many different products, wide range of value per item – incorrect calculations of stock on hand 8.Risk of theft (either during transport or from the stores) would vary across products – inventory account would be overstated if thefts were not identified (b)Strengths in inventory control system: Branch manager in each store and permanent staff who can receive consistent training in inventory control Permanent staff used to supervise casual staff at stores Inventory held at central warehouse under control of specialist inventory supervisors Requisition required for transfer from central warehouse to branch store Weaknesses in inventory control system: Casual staff may not be sufficiently trained or supervised despite procedures requiring this Inventory requisition authorised by branch manager rather than central manager Passing through central warehouse could delay receipt of product at branch, leading to overriding system to increase speed of delivery Questions about inventory control system: Who chooses and approves suppliers? Is there segregation between inventory staff and those keeping inventory records?...