Inventory and Production cycle Flashcards
Risks and internal controls in the cycle
- WAREHOUSING
Items of inventory do not exist due to items being stolen or having outdated accounting records.
The amount on stock records is not accurate due to capturing or calculation errors.
Not all inventory is recorded in the accounting records due to buying inventory but then not updating the accounting records.
Inventory can go missing due to it getting stolen.
Perishable items might get damaged or expire due to not storing it in the proper conditions.
Goods are not issued into production on time due to employees not working efficiently or communication issues.
Goods issued into production are not of the proper quality due to buying bad quality items or the items getting damaged in storage.
Management to have security measures in place, e.g. security guard or CCTV.
Security guards search employee when they get in or leave.
Correct documents used for correct purposes
Process followed for custody of assets or documents.
Authorization by signatures of one receiving and other issuing.
Senior checks up on production process to see if it’s running on time and follow policies.
Do a quality check before issuing items into production and after production
Stock count to ensure VAC
- PRODUCTION
Fictitious expenses due to someone trying to steal cash or due to profit smoothing.
Production costs could be inaccurate due to incorrect allocation of costs.
Not all costs are recorded due to overstating profits (fraud) or errors being made
Down time due to employees not coming to work (e.g. striking) or broken/faulty machines.
Company getting sued due to employees getting injured on the job.
The production manager uses a production cost schedule to redo calculation or cross count
Trace all crossed out amounts to supporting documents
Monitoring machines to identify instances it’s not working and repair it or have regular maintenance
Have safety policies to ensure injuries do not occur. And have someone make sure policies are being followed and implemented
