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CS Professional · Internal and Forensic Audit · Internal Controls

Internal auditors of Kaveri Pharma Ltd are evaluating whether a key control over inventory counts operated consistently during the year. Which procedure best tests operating effectiveness rather than mere design?

Re-performing a sample of count reconciliations across the year and checking sign-offs best tests operating effectiveness, because it gives direct evidence that the control actually operated consistently. Manuals, organisation charts and enquiry alone only show design or intention.

  1. AReading the inventory policy manual
  2. BRe-performing a sample of count reconciliations across the year and checking sign-offsCorrect
  3. CDiscussing the policy with the head of stores only
  4. DReviewing the organisation chart of the stores department

Explanation

Operating effectiveness is tested by examining evidence that the control actually worked throughout the period, such as re-performing reconciliations and verifying approvals. Reading manuals, organisation charts or enquiry alone only addresses design or intent.

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