Read the case study below and answer All the questions.
Mac Hart Corporation is a large engineering company with ten manufacturing units throughout the country. The manufacturing process is capital intensive and the company holds a wide variety of plant and equipment.
The finance director is responsible for the preparation of a detailed non-current assets budget annually, which is based on a five-year budget approved by the board of directors after consultation with the audit committee. This annual budget, which is also approved by the board, is held on computer file and is the authority for the issue of a purchase order.
When the item of plant and equipment is delivered to the company, a pre-numbered goods received note (GRN)…show more content… At the same time as the purchase invoice enters the purchasing system, a computerized non-current assets register is updated. Access to the non-current assets register is restricted to personnel in the accounting department. On a rolling basis throughout the year the non-current assets register is compared to plant and equipment on site by accounting department personnel, using identification numbers in the register and permanently marked onto each item in the factory.
The internal audit department also tests on a sample basis the operation of the system from budget preparation to entry in the non-current assets register. Internal audit staff also compare a sample of entries in the non-current assets register with equipment on the shop floor.
As part of your work as external auditor, you are reviewing the non-current assets audit programme of the internal auditors and notice that the basis of their testing is a representative sample of purchase invoices. They use this to test entries in the non-current assets register and the updating movements on the annual…show more content… The warehouse has been divided into 12 areas whereby each area needs to be counted once in a year . The counting team includes a member of the internal audit department and a warehouse staff member.
The following procedures have been adopted:
(1) The team prints the inventory quantities and descriptions from the system and these records are then compared to the inventory physically present.
(2) Any discrepancies in relation to quantities are noted on the inventory sheets including any items not listed on the sheets but present in the warehouse area.
(3) Any damage or old items are noted and they are removed from the inventory sheets.
(4) The sheets are then passed to the finance department for adjustments to be made to the records when the count has finished.
(5) During the counts, the inventory movements will continue with goods arriving and leaving the warehouse.
Traditionally the company has maintained an inventory provision based on 1% of the inventory value but management feels that as inventory is being reviewed more regularly it no longer needs this