In the context of the five components of internal control (COSO), how do Universal Product Codes (UPCs) most directly help improve inventory control?

• A. They replace monitoring by eliminating the need for cycle counts, reconciliations, and review of inventory adjustments.
• B. They strengthen the control environment by setting the ethical tone at the top and assigning authority and responsibility for inventory.
• C. They perform risk assessment by identifying and prioritizing inventory shrinkage risks without relying on transaction-level data.
• D. They improve control activities by enabling accurate item identification, scanning at receipt/sale, and automated updates to perpetual inventory records.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the five components of internal control according to COSO: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities.
2. Step 2: Recognize that Universal Product Codes (UPCs) are primarily tools used to identify items uniquely and facilitate automated data capture during inventory transactions.
3. Step 3: Analyze how UPCs impact inventory control by enabling accurate item identification, which supports scanning at receipt and sale points, leading to real-time updates in inventory records.
4. Step 4: Connect this functionality to the 'Control Activities' component, which includes policies and procedures that help ensure management directives are carried out effectively, such as automated inventory tracking.
5. Step 5: Conclude that UPCs most directly improve inventory control by enhancing Control Activities through automation and accuracy, rather than replacing monitoring, setting ethical tone, or performing risk assessment.