Problem
You are audit senior at Bernstein and Griffiths and have been assigned to the audit of Stockman Ltd (Stockman) for the current year. Stockman manufactures, wholesales and retails Australian Outback clothing for sale both in Australia and overseas. During the planning stage of the audit, you have identified the following three key internal controls over the functioning of Stockman's online inventory management system.
1. Internal control 1: The system will not allow a customer to place an order for an item of inventory that is currently out of stock.
2. Internal control 2: All new wholesale customers must undergo a credit approval check, which has to be signed off by Stockman's credit manager and chief financial officer (CFO), before their credit limits are approved and a debtor account established.
3. Internal control 3: Each customer is required to enter their unique customer identification number and personal identification number (PIN) before an order can be processed. This is to ensure that unauthorised inventory orders are not placed and only customers who are approved customers are able to order online.
For each of internal controls 1, 2 and 3 above, describe a test that you would perform to assess whether the control was functioning effectively.