Homework10
21-28 SOLUTION:
CLIENT
a.
ISSUES
TO CONSIDER
b.
LOCATIONS TO VISIT
c.
POTENTIAL RISKS
OF MATERIAL MISSTATEMENT
d.
AUDITOR
RESPONSES
TO RISKS
Colburn
A majority of the inventory amount on the balance sheet is located at the two distribution centers.
High dollar value inventory is stored in secure areas at the stores and distribution centers.
Inventory consists of a large number of products, with wide variations in unit costs, which could lead to inaccurate amounts.
Given the significance of the value of inventory located in the distribution centers, the auditor would most likely want to test controls and observe the physical inventory counting at the two distribution centers. The auditor would likely test controls related to inventory at the store level and select a sample from among the 77 stores to visit. While at the distribution centers and stores, the auditor is likely to focus on testing inventory in the secure areas.
Due to the high cost and demand for medicines, there is a risk of theft of inventory both at the distribution centers and stores. Additionally, because some medicines have expiration dates, there is a risk of obsolete inventory. It will be difficult for auditors to identify specific types of medicines since their differences are not visually noticeable but rather dependent on differences in compounds and chemicals. Furthermore, the large number of products, with wide variations in unit costs, could lead to inaccurate amounts.
The auditor will likely focus extensively on inventory management controls to determine the effectiveness of those controls in the prevention of theft. The auditor may also engage a pharmaceutical specialist to assist with the identification and evaluation of various medicines as part of the inventory observation process.
CLIENT
a.
ISSUES
TO CONSIDER
b.
LOCATIONS TO VISIT
c.
POTENTIAL RISKS
OF MATERIAL MISSTATEMENT
d.
AUDITOR
RESPONSES
TO RISKS
Texide Electronics
Inventory items are
CLIENT
a.
ISSUES
TO CONSIDER
b.
LOCATIONS TO VISIT
c.
POTENTIAL RISKS
OF MATERIAL MISSTATEMENT
d.
AUDITOR
RESPONSES
TO RISKS
Colburn
A majority of the inventory amount on the balance sheet is located at the two distribution centers.
High dollar value inventory is stored in secure areas at the stores and distribution centers.
Inventory consists of a large number of products, with wide variations in unit costs, which could lead to inaccurate amounts.
Given the significance of the value of inventory located in the distribution centers, the auditor would most likely want to test controls and observe the physical inventory counting at the two distribution centers. The auditor would likely test controls related to inventory at the store level and select a sample from among the 77 stores to visit. While at the distribution centers and stores, the auditor is likely to focus on testing inventory in the secure areas.
Due to the high cost and demand for medicines, there is a risk of theft of inventory both at the distribution centers and stores. Additionally, because some medicines have expiration dates, there is a risk of obsolete inventory. It will be difficult for auditors to identify specific types of medicines since their differences are not visually noticeable but rather dependent on differences in compounds and chemicals. Furthermore, the large number of products, with wide variations in unit costs, could lead to inaccurate amounts.
The auditor will likely focus extensively on inventory management controls to determine the effectiveness of those controls in the prevention of theft. The auditor may also engage a pharmaceutical specialist to assist with the identification and evaluation of various medicines as part of the inventory observation process.
CLIENT
a.
ISSUES
TO CONSIDER
b.
LOCATIONS TO VISIT
c.
POTENTIAL RISKS
OF MATERIAL MISSTATEMENT
d.
AUDITOR
RESPONSES
TO RISKS
Texide Electronics
Inventory items are