2. You are auditing the financial statements of a cosmeticsdistributor that sells thousands of individual items. Thedistributor keeps its inventory in its distribution center and intwo public warehouses. At the end of each business day, it updatesits inventory file, whose records contain the following data:
Item number
Cost per item
Item description
Date of last purchase
Quantity-on-hand
Date of last sale
Item location
Quantity sold during year
You will use audit software to examine inventory data as of thedate of the distributorâs physical inventory count. You willperform the following audit procedures:
Observe the distributorâs physical inventory count at year-endand test a sample for accuracy.
Compare the auditorâs test counts with the inventoryrecords.
Compare the companyâs physical count data with the inventoryrecords.
Test the mathematical accuracy of the distributorâs finalinventory valuation.
Test inventory pricing by obtaining item costs from buyers,vendors, or other sources.
Examine inventory purchase and sale transactions on or near theyear-end date to verify that all transactions were recorded in theproper accounting period.
Ascertain the propriety of inventory items located in publicwarehouses.
Analyze inventory for evidence of possible obsolescence.
Analyze inventory for evidence of possible overstocking orslow-moving items.
Test the accuracy of individual data items listed in thedistributorâs inventory master file.
Describe how the use of the audit software package and a copy ofthe inventory file data might be helpful to the auditor inperforming each of these auditing procedures.
2. You are auditing the financial statements of a cosmeticsdistributor that sells thousands of individual items. Thedistributor keeps its inventory in its distribution center and intwo public warehouses. At the end of each business day, it updatesits inventory file, whose records contain the following data:
Item number | Cost per item |
Item description | Date of last purchase |
Quantity-on-hand | Date of last sale |
Item location | Quantity sold during year |
You will use audit software to examine inventory data as of thedate of the distributorâs physical inventory count. You willperform the following audit procedures:
Observe the distributorâs physical inventory count at year-endand test a sample for accuracy.
Compare the auditorâs test counts with the inventoryrecords.
Compare the companyâs physical count data with the inventoryrecords.
Test the mathematical accuracy of the distributorâs finalinventory valuation.
Test inventory pricing by obtaining item costs from buyers,vendors, or other sources.
Examine inventory purchase and sale transactions on or near theyear-end date to verify that all transactions were recorded in theproper accounting period.
Ascertain the propriety of inventory items located in publicwarehouses.
Analyze inventory for evidence of possible obsolescence.
Analyze inventory for evidence of possible overstocking orslow-moving items.
Test the accuracy of individual data items listed in thedistributorâs inventory master file.
Describe how the use of the audit software package and a copy ofthe inventory file data might be helpful to the auditor inperforming each of these auditing procedures.
