Question

34

The following audit procedures were performed in the audit of

inventory to satisfy speci(c balance-related audit objectives as

discussed in Chapter 6. The audit procedures assume that the

auditor has obtained the inventory count sheets that list the client’s

inventory. The general balance-related audit objectives from

Chapter 6 are also included.

Audit Procedures

1. Test extend unit prices times quantity on the inventory list, test foot

the list, and compare the total to the general ledger.

2. Trace selected quantities from the inventory list to the physical

inventory to make sure that it exists and the quantities are the same.

3. Question operating personnel about the possibility of obsolete or slow-

moving inventory.

4. Select a sample of quantities of inventory in the factory warehouse and

trace each item to the inventory count sheets to determine if it has

been included and if the quantity and description are correct.

5. Compare the quantities on hand and unit prices on this year’s

inventory count sheets with those in the preceding year as a test for

large di5erences.

6. Examine sales invoices and contracts with customers to determine

whether any goods are out on consignment with customers. Similarly,

examine vendors’ invoices and contracts with vendors to determine

whether any goods on the inventory listing are owned by vendors.

7. Send letters directly to third parties who hold the client’s inventory and

request that they respond directly to the auditors.

General Balance-Related Audit Objectives

Existence Cuto5

Completeness Detail tie-in

Accuracy Realizable value

Classi$cation Rights and obligations

Required

a. Identify the type of audit evidence used for each audit procedure.

b. Identify the general balance-related audit objective or objectives

satis$ed by each audit procedure