FIVE (5) PRACTICE gUESTIONS FOR YOU TO PONDER 9UESTION L Congratulations. You we

ID: 2536444 • Letter: F

Question

FIVE (5) PRACTICE gUESTIONS FOR YOU TO PONDER 9UESTION L Congratulations. You were just promoted to senior in your firm bib the audit department. Further, you are assigned to the audit engagement of Ibex Inc., a manufacturer of many products with manufacturing facilities in 5 states and a home office in Wayne NJ Ibex Inc. recently added new production equipment in one of it's plants spending $2,000,000, which is considered a significant if not material acquisition during 2018. You were a member of the audit team in 2017, thus you have continuity on the Ibex account a. b. You have been assigned to plan the observation of your client's physical inventory scheduled to take place September 30, 2018. It is now May 1, 2018. The client has multiple locations and is a manufacturing company. c. Requirements: 1. Prepare a bricf outline of the steps that you would take to plan the 2018 physical inventory observation 2. Prepare an audit program, in good form, using the supplied audit work program forms, for the observation (you may combine item a and item b if you like) 3. Articulate the audit objective(s) as related to the inventory observation 4. Because tou want to be as efficient and you are conscious of not wasting time and your client's fees, what other audit procedures might you consider performing when at the inventories? A brief listing is fine 5. You will also be involved in developing an audit plan for inventory pricing and compilation later on. Briefly explain the significance of the physical inventory counts conducted by the Client.

Explanation / Answer

1. Planning of Inventory Audit :

Make a note of all the locations of the manufacturing facilities in the 5 states with details of their capacity production.

Confirming the dates scheduled for Inventory to client so that all the production is stopped and inventory movement is restricted.

Taking a note of companies policies and prcedures with respect to inventory handling and movements.

Making a note of all the inventory Raww Material work in progress and Finished goods for all the products.

2 INVENTORY AUDIT PROGRAMME OF IBIX INC

Schedule of staff (Annexure 1) By when By Who

(A) For each area, a separate staff employment schedule has to be made for 2 Weeks before

We need to plan for unplanned absence by making necessary arrangement for replacement staff

(B) Each Manufacturing facility prepares a Store Inventory plan. This includes all aisles and bays where merchandise is Stored. 2 Weeks before

All the racks in the facility should have distinct numbers

3. Audit Objectives

1. Inventory reflected in Books of accounts exists in actual and includes all ra material, WIP and Finished goods

2. The Ibex Inc has legal title of all the inventory

3. Usage and movement of inventory is recorded correctly as to account, amount, and period.

4. Slow Moving Inventory is identifies and monitored

5. Costs are assigned to inventory based on the valuation method viz. FIFO, Average etc

6. The Policies and procedures for physical couting of inventory are adequate.

4. Audit Procedures to save time and additional fees :

Communicate the date of Inventory couting beforehand, location wise.

Hold a pre plan audit meeting with the team to review audit policies and procedures.

Visit to a manufacturing facility to determine nature and extent of inventory and also determine hich inventory is material

5. Benefits of Physical Inventory Count:

It helps to get the exact count of actual closing stock and record any differences before closing of books of accounts for the year.

It helps to identify shrikage problem and also keep a tab if there is any theft or mishandling.

With accurate inventory decisions of further production, sales, communication with distributor can be made.