Tag (SQ): Deficiencies

Your firm is the external auditor of Elite Tableware Ltd, and you recently attended the year-end inventory count at the company’s warehouse. The company manufactures high quality tableware (plates, cups and saucers etc.) and it maintains an integrated computerised system that shows the inventory held at any point in time.
At the year-end inventory count, reports showing the various categories of inventories (but not the quantities) are printed off the system and the quantities of inventories actually counted are inserted annually by the counters. Later the quantities are compared with those per the computer system.
The count instructions were received by both you and the counters the day before the count was due to take place. The instructions consisted of the following five points:
(1) Counters must arrive at 8 am on the morning of the count.
(2) They will work in teams of two people.
(3) Each team will be assigned a specific area of the warehouse to count. They will receive inventory sheets listing the products to be found in their area.
(4) The inventory sheets are pre-numbered.
(5) Once the counters have finished the inventory count, the inventory sheets must be handed to the warehouse manager.

Your notes from the attendance at the count include the following observations:
Many areas in which the count took place were untidy and inventory was sometimes difficult to find because it was not in the allocated area. The same categories of inventories were sometimes found in several different areas and some inventory was incorrectly labelled.
The count was conducted in a hurry in order to close the warehouse before a public holiday and there were insufficient counters to conduct the count properly in the time available. The issue and receipt of inventory sheets (on which the quantities were recorded by counters) was not properly controlled. It was difficult to reconcile the inventory quantities recorded at the count to the computerised records and some significant differences remain outstanding.
Although no finished goods were dispatched during the inventory count, a large delivery of raw materials was received into the warehouse.
Required:
(a) For the inventory count conducted by Elite Tableware Ltd:
(i) Identify and explain FOUR (4) deficiencies in the count.
(ii) Explain the possible implication of each deficiency and
(iii) Provide a recommendation to address each deficiency.

(b) Describe the audit procedures that auditor should perform at the year end to confirm each of the following:
(i) The existence of inventory

(ii) The completeness of inventory

(iii) The valuation of inventory.