Decision 11

Reminder – I do not allow direct quotes in student’s work in this class.  You need to paraphrase and cite your outside sources.  “Outside sources” do not include the text and so you don’t need to cite it. 

1)           Before your physical observation of an inventory count, you obtained a copy of the client’s inventory instructions and reviewed them with the controller.  You noted the following features of their processes:  1) shipping operations will not be halted during the count and 2) there will be no double counting of the original inventory count by a second counting team.  Evaluated the importance of each of these features and describe and audit procedure you might use to compensate for each feature.  Note that as an auditor, you cannot force the client to alter their procedures and must adapt to them through your own tests.  This question is adapted from the text and the normal caveats about not trying to looking up the solution apply.

Hint:  While these features complicate taking a physical inventory, they are not uncommon.  Firms don’t want to risk losing customers by delaying shipments during a count and doing a complete double count is expensive and not usually done.  Your job is to discuss what audit procedures you would use to compensate for these features but you should not recommend changes to the client’s approach. 

2)           Explain why a proper timing of purchases and sales transactions is heavily dependent on the physical inventory observation.  What information should be obtained during the physical count to make sure that the cutoff for both purchases and sales are accurate.  This question is adapted from the text and the normal caveats about not trying to looking up the solution apply.

Hint:  You need to suggest specific pieces of information the auditor should accumulate that shows you understand the link between the physical count of the inventory at year end and establishing proper timing for transactions that affect the inventory balance.