(Computer-assisted substantive tests for inventory) An auditor is conducting an
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Question
(Computer-assisted substantive tests for inventory) An auditor is conducting an audit of the financial statements of a wholesale cosmetics distributor with an inventory consisting of thousands of individual items. The distributor keeps its inventory in its own distribution center and two public warehouses. An inventory computer file is maintained on a computer disk and at the end of each day the file is updated. Each record of the inventory file contains the following data:
Item number
Location of item
Description of item
Quantity on hand
Cost per item
Date of last purchase
Date of last sale
Quantity sold during year
The auditor is planning to observe the distributor's physical count of inventories as of a given date. The auditor will have available a computer tape of the data on the inventory file on the date of the physical count and a general-purpose computer software package.
Required
The auditor is planning to perform inventory substantive tests. Identify the inventory tests and describe how use of the general-purpose software package and the tape of the inventory file data might be helpful to the auditor in performing such tests. (Hint: You may wish to refer to Chapter 12 as well as this chapter in answering this question.) Organize your answer as follows:
Inventory Substantive Test
How Generalized Audit Software Might Be Helpful for Substantive Tests
Observe the physical count, making and recording test counts when applicable.
Determine which items are to be test counted by selecting a random sample of a representative number of items from the inventory file as of the date of the physical count.
Inventory Substantive Test
How Generalized Audit Software Might Be Helpful for Substantive Tests
Observe the physical count, making and recording test counts when applicable.
Determine which items are to be test counted by selecting a random sample of a representative number of items from the inventory file as of the date of the physical count.
Explanation / Answer
Inventory Substantive Test
How Generalized Audit Software Might Be Helpful for Substantive Tests
Observe the physical count, making and recording test counts when applicable.
Determine which items are to be test counted by selecting a random sample of a representative number of items from the inventory file as of the date of the physical count.
Inventory compiliation needs to This can be done by multilpying the cost of physical units with
be checked for mathematical its cost per unit and also verfitying for any addittiin of the
accuracy extended dollar value
Comparing inventory records and This can be donet by arranging inventory file and test counts
auditors test counts in file format
Physical count and inventory records Comparing the external values of each inventory item counted
comparing to the inventory and total extended value of all items counted.
Price of inventory testing either by this can be done by preparing file in format same to the file
obtianing vendors price list and inventory and the same matching file
other sources
purchase and sale items whose last date of purchase and sale date are on or immediatiely
cutoffs examination prior to the date of count need to be sample listed
items in warehouse listing of items in warhouses.
Inventory Substantive Test
How Generalized Audit Software Might Be Helpful for Substantive Tests
Observe the physical count, making and recording test counts when applicable.
Determine which items are to be test counted by selecting a random sample of a representative number of items from the inventory file as of the date of the physical count.
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