Laramie Wire Manufacturing Essay

Case 8.1 Laramie Wire Manufacturing Auditing Standards AU 329 – Analytical Procedures– Analytical procedures consist of evaluations based on studies of financial and non-financial data. Auditors use analytical procedures for three reasons: planning the nature, extent, and timing of analytical procedures as a substantive test to obtain audit evidence about particular assertions related to account balances or classes of transactions as an overall review of the financial information in the following stage of the audit. 1.) Analytical Procedures: Inventory Estimates: To estimate inventory, one can multiply the cost per unit by the total units in the end of the year balance. Copper Rod costs $.48 per pound, and Laramiereported that there were approximately 5.9 million pounds of Copper Rods in its inventory. These facts lead us to an estimated Copper Rod Inventory balance of $2,832,000. Laramie’s 2008 inventory balance was $2,625,000, a -7.89% difference from our estimate. We feel that this
Therefore, as an auditor, we should ensure that the amount of inventory actually exists. In order to do so, we should observe the amount of inventory to ensure of its existence. Likewise, we should observe the copper rod inventory and their related accounting records to ensure that the balance of 2008’s copper rod inventory is accurate. Completeness– We should examine the paper trail of payments received on transactions related to wire, and check to see that the transactions were fully recorded to the general ledger. If inventory is not being written off as cost of goods sold at the time of sale, the inventory balance could be understated. Relating to the finished goods, we should ensure that appropriate journal entries were made removing from inventory the amount of banned residential wire that is to be