Part A: Findings and Recommendations for Management
What recommendations do you have for management, based on the audit information for B, P, & J Truck Repair Service?
Recommendations should include:
Purchases and accounts payable:Explain the results of the analytic procedures related to the accounts payable audit and what those results indicate.
Internal control:Identify management's assertions regarding the internal controls and the effectiveness of each internal control within human resources.
Production control:Identify the control objectives. Test the control activities (or procedures) of the parts inventory reporting system and explain the strengths and weaknesses.
Scenario
B, P, & J Truck Repair Service is a heavy-duty truck maintenance shop that performs various services for its customers. The company has two categories of purchases, stock purchases for ordinary maintenance and special purchases for major repairs. Stock purchases include shop supplies (shop towels, cleaning products, et cetera), general parts (oil, brake fluid, coolant, et cetera), and high-demand specialty parts (truck parts that are common to many vehicles). Specialty purchases include low-demand specialty parts (truck parts that are specific to a vehicle) and equipment (tools, truck lift, air compressors, et cetera). Stock purchases are estimated and made in advance of demand. Specialty purchases are only ordered on an “as needed†basis for specific parts or equipment.
Production Control Audit
Each of the following audit procedures is being used in the audit of B, P, & J Truck Repair Service to test the production control activities.
1. Select a sample of the documents prepared when parts are released from inventory. Examine and tie the job number to the cost accounting records.
2.Select a sample of the parts release documents in the production department file. Examine the documents for the supervisorâ€TMs signature or initials.
3.Select a sample of the parts release documents in the production department file. Examine for issue date and parts usage report date.
4.Select a sample of the parts release documents in the production department file. Examine for the name and item number of the part.
5.Select a sample of the parts release documents in the production department file. Examine for the parts department employeeâ€TMs signature or initials indicating who issued the parts.
6.Select a sample of the parts release documents in the production department file. Examine for a matching parts requisition in the inventory file, noting the date of requisition.
For each of these procedures identify the strength of the internal control procedure being tested and the internal accounting objectives being addressed. Format your answer in tabular form.