The Saginaw Steering Gear Company makes automotive steering gears that it supplies to automobile…
The Saginaw Steering Gear Company makes automotive steering gears that it supplies to automobile manufacturers.The company, in turn, purchases a number of its component parts from other suppliers. The company requires all its suppliers to utilize EDI and has established trading agreements with all of its vendors.The process utilized is fairly typical of the industry in the following manner:
• A VAN is used to communicate to all suppliers.
• The trading agreement specifies each party’s responsibilities.
• Shipments are made upon acknowledgment by the Steering Gear Company of the receipt confirmation.
• Goods are scanned into Steering Gear by reading bar codes on pallets of goods.
• Suppliers are responsible for quality inspection and meeting specified quality criteria.
• Inventory is updated at the time goods are received.
• Invoices are received from vendors electronically.
• A computer application compares orders, receipts, and invoices.The same application transmits funds electronically to the vendor according to the discount terms contained in the trading partner agreement.
• A report detailing disagreements between goods received and invoiced amount is given to accounts payable for reconciliation.
• A computer log detailing all the information normally contained in an audit trail is stored online for one month, and is stored on optical disk for a period of three years afterward.
• The company uses standard edit tests in all its applications.
• Batch control totals are used to identify and log transactions to and from the VAN.
a. Identify the manual-based audit procedures the auditor would utilize to test the correctness of processing and to gather information about the adequacy of controls.
b. Explain how the auditor might use generalized audit software to perform audit procedures related to the proper payment of goods received from vendors.
c. Explain how the auditor might use generalized audit software to test assertions related to the existence and valuation of inventory.