Answered: According to your understanding as a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are a financial auditor from a CPA Firm. One day when You audit your client, you found that your client has a weak security system for physical inventory. The client is an automotive parts company with a lot of valuable part inventory. The lack of procedures for securing inventory is shown from the evidence such as employees unrelated to inventory can enter the inventory warehouse. The company also has inventory in subcontractors. Some parts are sent to the subcontractor company, so there are many warehouses outside the main plant. Besides that, the absence of a computerized system in recording incoming and outgoing inventory flows in a subcontractor. Under these conditions, inventory theft is particularly vulnerable. According to your understanding as a financial auditor, can these conditions lead to material misstatements in the client’s financial statements? Explain your answer!

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