The following misstatement is included in the inventory and related records of A

Question

The following misstatement is included in the inventory and related records of Acme Company.

After the auditor left the premises, several inventory tags were lost and were not included in the final inventory summary.

During the physical count, several obsolete inventory items were included.

Questions:

For each misstatement, formulate an internal control procedure that should have prevented it from occurring.

For each misstatement, formulate a substantive audit procedure that could be used to uncover it.

Explanation / Answer

Number and numerically control all inventory tags. Auditor should include procedure to ensure all inventory tags are numbered and accounted for. Physically segregate all items when declared obsolete. Auditor should obtain list of obsolete items and physically check to see that they are segregated from the countable inventory.

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