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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

An internal auditor reviewing the stores of Deccan Textiles Ltd finds that material issues to production are made on verbal requests, with requisition slips prepared later. What is the primary risk?

The main risk is unauthorised or unrecorded issues, leading to pilferage and wrong cost allocation to jobs. Issues should be made only against approved material requisitions prepared beforehand, which creates an authorisation trail. Capital, filings and receivables are not directly affected by this weakness.

  1. AUnauthorised or unrecorded issues leading to pilferage and wrong cost allocationCorrect
  2. BOverstatement of share capital
  3. CDelay in statutory filings with the Registrar
  4. DUnderstatement of trade receivables

Explanation

Without an approved material requisition before issue, there is no authorisation trail, so stock can be taken without being recorded and costs may be charged to wrong jobs. Share capital, statutory filings and receivables are not affected by the issue procedure.

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