Question 2: Following are audit procedures commonly per- formed in the inventory and warehousing cycle for a manufacturing company: 1. Read the client’s physical inventory instructions and observe whether they are being followed by those responsible for counting the inventory. 2. Use audit software to compute inventory turnover by major product line and com- pare it to turnover in the prior year. 3. Account for a sequence of inventory tags and trace each tag to the physical inventory to make sure it actually exists. 4. Compare the client’s count of physical inventory at an interim date with the per- petual inventory master file. 5. Trace the auditor’s test counts recorded in the audit files to the final inventory com- pilation and compare the tag number, description, and quantity. 6. Compare the unit price on the final inventory summary with vendors’ invoices. 7. Account for a sequence of raw material requisitions and examine each requisition for an authorized approval. 8. Trace the recorded additions on the finished goods perpetual inventory master file to the records for completed production. Requirements: a. Identify whether each of the procedures is primarily a test of control or a substantive test. b. State the purpose(s) of each of the procedures.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 31CYBK

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Question 2: Following are audit procedures commonly per- formed in the inventory and warehousing cycle for a manufacturing company: 1. Read the client’s physical inventory instructions and observe whether they are being followed by those responsible for counting the inventory. 2. Use audit software to compute inventory turnover by major product line and com- pare it to turnover in the prior year. 3. Account for a sequence of inventory tags and trace each tag to the physical inventory to make sure it actually exists. 4. Compare the client’s count of physical inventory at an interim date with the per- petual inventory master file. 5. Trace the auditor’s test counts recorded in the audit files to the final inventory com- pilation and compare the tag number, description, and quantity. 6. Compare the unit price on the final inventory summary with vendors’ invoices. 7. Account for a sequence of raw material requisitions and examine each requisition for an authorized approval. 8. Trace the recorded additions on the finished goods perpetual inventory master file to the records for completed production. Requirements: a. Identify whether each of the procedures is primarily a test of control or a substantive test. b. State the purpose(s) of each of the procedures.

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