DISCUSSION QUESTIONS:
1. Identify important internal control activities present in a properly designed production cycle system to mitigate risk. Given examples of audit tests to test the operating effectiveness of the internal controls.
2. One of the major concerns of customer is to not have an excess amount of inventory on hand. One of my friends at JC Penney's says one of their major problems is as a company they have too much working capital tied up in inventory. In my mind it seems that retailers then expect the manufacturers to bear the burden of controlling inventory. But manufacturers don't want to start production without a firm commitment from their customers before building up production.Should the auditor be concerned whether or not the client is keeping up with production demands?
3. Most manufacturing companies control their own inventory. But today with just in time inventory systems there are times when the client will have inventory under the control of third parties or even on consignment.How would you test inventory that is on consignment with a third party?
4. Describe the production cycle, including typical source documents. Give examples of substantive procedures in the production cycle.
5. One major concern is whether the inventory is over valued. How would you test to detect whether your client has excess inventory and whether or not the inventory has been properly valued on the balance sheet?
6. Describe the finance and investment cycle including typical source documents. Give examples of substantive procedures in the finance and investment cycle.
7. My Dad was a financial officer for a small state university in the State of Missouri. As part of his job he would receive donations and often these were either cash or securities. But on occasion he would collect illiquid assets without a ready market, such as farm lands or old run down buildings.As an auditor how would you test the value for illiquid assets?
8. Identify analytical tests to detect material misstatements for the finance and investment cycle. Identify substantive tests of transactions and balances to detect material misstatements.
ANSWER EACH QUESTION IN 200 OR MORE WORDS.
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