3. Is your long relationship with the client a strength or a weakness? Explain T

Question

3. Is your long relationship with the client a strength or a weakness? Explain

The client has inventory at approximately 50 locations in a three-state region. The inventory is difficult to count and can be observed only by traveling by automobile. The intemal controls over acquisitions, cash disbursements, and perpetual records are considered effective. This is the fifth year that you have done the audit, and audit results in past years have always been excellent. The client is in excellent financial condition and is privately held. a

Explanation / Answer

-Review client's plan for performing inventory count.Plan should include procedures relating to count and should allcate staff responsible for each class of inventory at different locations.

-Evidence of Appropriate supervision for those performing count should be examined.

- Ensuring the accounting of all stock sheets.

-When control risk is high or client uses periodic system-inventory client should be taken at the end of the year.

-If client uses perpetual system, inventory should be count at interim dates.

-Perform Analytical Procedures.

-Reconcile physical invenory amounts with perpetual records.

-Examine evidences for ownership.

- To examine the operating effectiveness of controls relating to invenory counts with Physical records.

- If due to previous experience and judegements of Auditor, if there is effective control over the invenory during the audit visit, then auditor can rely on invenory counts.

If there is a weakness in the invenory control, then auditor should increase Test of details which includes analytical procedures, Vouching and Verification..

-The auditor can request the management for written representaions from the ,management that mangaement has fulfilled their responsiblity relating to inventory management.

-If the auditor has a strong relationship with the client, then it will lead to wrong opinion. There is a change that Independence of the audit will not maintain.

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