- 10 Marks
AA – L2 – Q39 – Audit Evidence
Describe how audit software can assist in testing Pemberton Products' inventory system. List concerns about Pemberton Products' proposal for continuous inventory checking.
Question
Pemberton Products manufactures plastic products and has an extensive product range which is revised frequently. Your firm has audited Pemberton Products for many years.
The company maintains computerised inventory records and carries out quarterly inventory counts. The inventory records are adjusted for any discrepancies between the records and the physical count.
The managing director is concerned that the quarterly inventory counts are disruptive and time-consuming. He has proposed the introduction of continuous checking throughout the year with no full year-end inventory count.
Required
(a) Describe how you might use audit software to assist you in your testing of the current inventory system.
(b) List the concerns you, as auditor, would have when deciding whether you support the managing director’s proposal.
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