Required information Potential Misstatements in the Auditing of Inventory Read the overview below and complete the activities that follow. Because of its importance and typically high dollar value on the balance sheet of a manufacturing entity, the audit of inventory is important and often high risk. As such, auditors must take additional care when auditing this area due to the capacity for both errors and fraud. CONCEPT REVIEW: When identifying misstatements in testing inventory, it is important to consider the control environment to determine if the misstatements found are indicators of client error or intentional fraud 1. Inventories with a high risk of 2. Purchasing and cash disbursements can provide opportunity for by employees considering information about the client and its environment, the auditors must assess the 3 risks of material misstatement related to assertions about inventory may be warranted as a signficant risk 5 4 Audit procedures for consignment inventory could include a comparison of the physical inventory with the client's Tests used to help identify the structure of controls help to evaluate the client's internal control

Required information Potential Misstatements in the Auditing of Inventory Read the overview below and complete the activities that follow. Because of its importance and typically high dollar value on the balance sheet of a manufacturing entity, the audit of inventory is important and often high risk. As such, auditors must take additional care when auditing this area due to the capacity for both errors and fraud. CONCEPT REVIEW: When identifying misstatements in testing inventory, it is important to consider the control environment to determine if the misstatements found are indicators of client error or intentional fraud 1. Inventories with a high risk of 2. Purchasing and cash disbursements can provide opportunity for by employees considering information about the client and its environment, the auditors must assess the 3 risks of material misstatement related to assertions about inventory may be warranted as a signficant risk 5 4 Audit procedures for consignment inventory could include a comparison of the physical inventory with the client's Tests used to help identify the structure of controls help to evaluate the client's internal control

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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Concept explainers

Audit Procedures

Audit Procedures are methods and techniques performed by the auditor to determine the quality of financial information of clients, thereby expressing an opinion on true & fair view of financial statements and entity position. They are identified and applied at the planning stage of audit after determining audit objectives, scope, approach, and risk assessment.

Question

Required information
Potential Misstatements in the Auditing of Inventory
Read the overview below and complete the activities that follow.
Because of its importance and typically high dollar value on the balance sheet of a manufacturing
entity, the audit of inventory is important and often high risk. As such, auditors must take additional
care when auditing this area due to the capacity for both errors and fraud.
CONCEPT REVIEW:
When identifying misstatements in testing inventory, it is important to consider the control environment
to determine if the misstatements found are indicators of client error or intentional fraud.
1. Inventories with a high risk of
2. Purchasing and cash disbursements can provide opportunity for
by employees
3.
considering information about the client and its environment, the auditors must assess the
risks of material misstatement related to assertions about inventory
may be warranted as a signficant risk
5.
4
Audit procedures for consignment inventory could include a comparison of the physical inventory
with the client's
of controls help to evaluate the client's internal control
Tests used to help identify the
structure

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During the audit of Sunrise Enterprises, LLC, a provider of plastic utensils and other items to restaurants throughout the southeastern United States, the auditors have determined that the client's inventory represents an area of higher inherent risk. As a result, which of the following choices would most likely represent a prudent course of action by the auditor? O The auditor is most likely to simply disclaim an opinion on the client's inventory and any related accounts, as this area represents higher audit risk. The auditor may decide to audit the inventory accounts closer to the balance sheet date, and extend the extent of procedures performed on these accounts. O The auditor is likely to adopt a reliance on controls strategy, and perform less substantive procedures accordingly. O The auditor is likely to perform procedures on these accounts closer to the beginning of the audit, to allow more time to fix any problems uncovered.
Q.9.
Sales orders are written by sales people who have no access to the goods, which are released by warehouse personnel. This is example of: an analytical review establishing a system for storing and counting inventory proper documentation that is monitored properly segregation of duties
As the auditor of Sample Limited you note the following matters relating to the internal control of its sales system. i) The sales department accepts order without first checking the inventory level with the warchouse, ii) Goods are dispatched to customers without recording customer's signatures as proof of receipt of goods. iii) Orders of goods placed by customers are properly recorded but they are not forwarded timely to the dispatch department for fulfilling the order. For each of the above deficiencies, identify the possible impact on the company's operation and recommend a control to address it. Explain why an auditor cannot perform only test of control in an audit.