10 by listing items if any with negative quantities

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10. By listing items, if any, with negative quantities or costs. 13-32 a. 6 b. 3 c. 1 d. 4 e. 2 Solution to Discussion Case 13-33 a. The auditors did not follow the following audit procedures in a satisfactory manner: Control of count sheets during and after the inventory. There may not have been adequate supervision and instruction of the inventory observation teams by the auditors. There is no evidence that there was adequate preplanning of the inventory count. Even though it is difficult to spend continuous time in the upper decks, there must be a careful control over their contents and planned counting must still be observed. Although the late addition of such sheets is highly irregular, the auditors did very little to satisfy themselves of their accuracy. The altering of count sheets after the auditors left could have been prevented by "lining out" unused portions of the count sheet prior to leaving the inventory observation. Test counts of lines on sheets could also have detected the changes. Physically examining inventory represented on additional count sheets with specific assurances that the items did not represent duplications in the count. Tracing the items to purchase invoices does not prove existence at the inventory date, only that the items were at one time bona fide. Questions about inventory turnover and similar comparisons should have been raised and addressed. If the additional items listed on the four additional sheets, the changing of unit designations, or the fictitious amounts added to completed sheets created unusual balances in specific inventory items, a review of the inventory balances and comparison with previous years’ would have indicated unusual increases. Because of the weaknesses in inventory control, audit procedures should have been expanded. 13-12
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Chapter 13 - Auditing the Inventory Management Process b. Failure to obtain adequate evidence to support management's assertions can result in legal liability from injured third parties and in fines and sanctions by the PCAOB and the SEC. Possible PCAOB and SEC sanctions are discussed in Chapter 20. For example, SEC sanctions can involve prohibition of appearing before the commission, prohibition from accepting new SEC clients, and/or required peer reviews. c. The following auditing standards require that the auditor communicate specific information to the audit committee. AU325, "Communicating Internal Control- Related Matters Identified in an Audit", requires that the auditor report to the audit committee, or to a similar level of authority when the entity does not have an audit committee, matters which are referred to as reportable conditions. AU 316, "Consideration of Fraud in a Financial Statement Audit", and AU 317, "Illegal Acts", state that the auditor should inform the audit committee or board of directors of material fraud that is identified. AU 380, "The Auditor’s Communication with Those Charged with Governance", requires that the auditor communicate certain matters
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  • Spring '12
  • Na
  • inventory management process

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