Chapter 12, Problem 28DQP

A CPA’s client, Boos & Baumkirchner, Inc., is a medium-size manufacturer of products for the leisure-time activities market (camping equipment, scuba gear, bows and arrows, and so forth). During the past year, a new computer system was installed and inventory records of finished goods and parts were converted to the new system. The inventory master file is maintained electronically. Each record of the file contains the following information:

• Item or part number
• Description
• Size
• Unit-of-measure code
• Quantity on hand
• Cost per unit
• Total value of inventory on hand at cost
• Date of last sale or usage
• Quantity used or sold this year
• Economic order quantity
• Code number of major vendor
• Code number of secondary vendor

In preparation for year-end inventory, the client has two identical sets of preprinted inventory count cards. One set is for the client’s inventory counts, and the other is for the CPA’s use to make audit test counts. The following information is on each card:

• Item or part number
• Description
• Size
• Unit-of-measure code

In taking the year-end inventory, the client’s personnel will write the actual counted quantity on the face of each card. When all counts are complete, the counted quantity will be entered into the system. The cards will be processed against the inventory database, and quantity-on-hand figures will be adjusted to reflect the actual count. A computer-generated edit listing will be prepared to show any missing inventory count cards and all quantity adjustments of more than $100 in value. These items will be investigated by client personnel, and all required adjustments will be made. When adjustments have been completed, the final year-end balances will be computed and posted to the general ledger.

The CPA has available generalized audit software that will run on the client’s computer and can process the client’s electronic records.

Required

1. a. In general and without regard to the facts in this case, discuss the nature of generalized audit software and list the various types and uses.
2. b. List and describe at least five ways generalized audit software can be used to assist in all aspects of the audit of the inventory of Boos & Baumkirchner, Inc. (For example, the software can be used to read the inventory master file and list items and parts with a high unit cost or total value. Such items can be included in the test counts to increase the dollar coverage of the audit verification.)^*