AA – Nov 2015 – L2 – Q3b – Internal Control Systems

Describing internal control procedures an auditor would expect for inventory management.

Question

Describe TWO internal control procedures an auditor would expect the company to put in place in respect of inventories.

Answer

Segregation of Duties:
The company should implement a segregation of duties within the inventory management process to ensure that different individuals are responsible for ordering, receiving, and issuing inventory. This reduces the risk of errors, theft, or fraud as no single person has control over the entire process.
Inventory Record Keeping and Reconciliation:
The company should maintain detailed records of all inventory transactions, including purchases, sales, and inventory movements. These records should be regularly reconciled with physical inventory counts to detect discrepancies and ensure accurate reporting.