Inventory Count – Knowsia

AA – L2 – SA – Q1.9 – Cut-Off

Identify what is not true about cut-off.

Question

What is NOT true about cut-off?

A Last goods received note will determine the last invoice appearing in receivables

B It determines where one period ends and another one starts

C Details should be taken at the inventory count

D It is a good way to manipulate the financial statements

Answer

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Tags: Cut-off, Financial Statements, ICAG, Inventory Count
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q1.5 – Audit Planning

Identify what is not considered at the audit planning stage.

Question

At the planning stage you would NOT consider:

A the timing of the audit

B whether corrections from the inventory count have been implemented

C last year’s audit

D the potential use of internal audit

Answer

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Tags: Audit Planning, ICAG, Internal Audit, Inventory Count
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

Question

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.

Answer

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Tags: Audit Procedures, Completeness, Deficiencies, Existence, Internal controls, Inventory Count, Valuation
Level: Level 2

Topic: Audit Evidence

AA – L2 – Q47 – Audit Evidence

Identify strengths and weaknesses of year-end inventory count instructions at a manufacturer.

Question

The following is a set of instructions for the year end physical inventory count at a manufacturer. Production is to continue on the day of the year end count.
Counting is to be carried out by staff from the warehouse and the accounts department. Counters are to report at 8am on 30 June to the warehouse manager.
The warehouse manager will issue sequentially numbered inventory sheets which will include pre-printed descriptions of the inventory lines and the quantities supplied by the inventory controller.
The count area is to be divided into sections and each will be allocated a section by the warehouse manager. Items are to be marked once counted.
The production manager will estimate the materials required for use in production on the day and ensure that they are taken out of the warehouse and moved to the production department.
Goods to be despatched on the day are to be taken out of the warehouse before counting commences and labelled accordingly. Any items not despatched at the end of the day will be included in inventory. The number of the last despatch note will be recorded by the warehouse manager.
Any emergency requisitions of raw materials are to be reported to the warehouse manager.
Damaged inventory is to be noted as such on the inventory sheets.
Any discrepancies between physical and book inventory will be referred to the warehouse manager.
All inventory sheets are to be signed by the counter and returned to the warehouse manager at the end of the count. The warehouse manager will check the numerical sequence of the inventory sheets.

Required
Identify the strengths and the weaknesses of the above instructions, explaining clearly their significance.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Cut-off, Internal controls, Inventory Count, Physical Inventory
Level: Level 2

Topic: Audit Evidence

Tag (SQ): Inventory Count

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AA – L2 – SA – Q1.9 – Cut-Off

Identify what is not true about cut-off.

AA – L2 – SA – Q1.5 – Audit Planning

Identify what is not considered at the audit planning stage.

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

AA – L2 – Q47 – Audit Evidence

Identify strengths and weaknesses of year-end inventory count instructions at a manufacturer.

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AA – L2 – SA – Q1.9 – Cut-Off

Identify what is not true about cut-off.

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AA – L2 – SA – Q1.5 – Audit Planning

Identify what is not considered at the audit planning stage.

You're reporting an error for "AA – L2 – SA – Q1.5 – Audit Planning"

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

You're reporting an error for "AA – L2 – Q62 – Audit Evidence"

AA – L2 – Q47 – Audit Evidence

Identify strengths and weaknesses of year-end inventory count instructions at a manufacturer.

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